How to choose investment stocks based on economic conditions

The economy is not looking so good these days, even with interest rates rising, and inflation not stopping. Which stocks can we invest in? In this article, ACU PAY will lead our friends to find out what kind of stocks we should invest in during this economic situation.

There are 2 points to understand before start

The stock market usually reflects an average 3-6 month future. Therefore, during the economic downturn, the stock market may already be on the uptrend. Stocks with outperformance tendencies do not mean that they will yield more positive returns than others. For example, stocks may fall but they may fall less.

If you are ready, let’s start!

What is the ‘Economic cycle’?

Basically, the economic cycle is divided into 4 stages in order as follows:

1. Early recession

It is a time when the economy looks poor, with high interest rates, flat yield curves, or inverted forms. This may be a downturn in the stock market due to investors’ fear of a possible recession in the future. In the early days, stocks that tend to outperform will be rather defensive, such as medicine & health, and infrastructure groups, but later may be banking and finance groups.

2. Full recession

This is a period of negative GDP growth or an era of famine. Policies to stimulate the economy may be introduced such as interest rate cuts. This may be the time when the stock market has bottomed out or is on an upward trend. The group that performs well will benefit first once the economy recovers, such as finance, technology, and cyclical groups.

3.Early recovery

When the economy started to pick up where interest rates had bottomed out, inflation remained low, and inventory gradually sold, prices began to rise, business performance improved, economic activity recovered, consumers began to spend more, and investment direction was likely to improve. Based on GDP growth, the stock market is now on the uptrend, the stocks that will benefit are technology, industries and basic materials, energy, and luxury goods which are likely to benefit from the economic recovery.

4. Full recovery

The stocks that tend to yield good returns will be basic materials, energy, and luxury goods. However, at the end of this period, the stock market is worried about the economic recession and comes back to giving weight to the relatively defensive service group at the end, such as the medical group.

Return on stocks may not improve much from the recession period. It is recommended to reduce the stock proportion in portfolios. If you need to invest, it is stocks that are inexpensive are recommended and should have stable cash flow, such as utilities and long-term debt instruments. Since the Bank of Thailand cut interest rates to stimulate the economy, the value of long-term debt instruments will increase (the price of long-term debt instruments will run counter to interest rates). The ones with good credit ratings should be chosen to reduce the risk of insolvency of issuers.

References from
setinvestnow /setinvestnow2 /set /setinvestnow3