August, soon ending, saw global financial markets taking greater risks again. Capital flowed into all major asset groups simultaneously. Global equity inflows exceeded $210 billion, with a key shift in growth stocks like technology where investors bought aggressively, totaling $38.8 billion—more than double the previous month—after chip stocks sharply corrected in late July.
More interestingly, the destination of funds began to spread beyond the U.S. Although the U.S. remained the largest market with $153 billion inflow, this was down from the prior month. The missing funds moved into North Asia, with China receiving $27.6 billion, followed by Taiwan and South Korea, while Thailand remained near neutral. Another market sentiment indicator was gold, which attracted over $10 billion, while energy stocks continued to be sold, indicating that investors now prefer gold to hedge Middle East risks rather than oil stocks.
However, this seemingly positive picture faces a challenge in September, and the most concerning variable is long-term bond yields that refuse to decline.
The first and most important issue is the simultaneous rise in long-term bond yields worldwide. It’s not only the U.S., where 30-year bond yields hit their highest since 2007, but also Japan’s 10-year yields reached a 30-year peak, the UK’s bonds remain above 5%, and Germany’s yields are the highest since 2011. The common cause is concern over excessive government debt globally and persistent long-term inflation. This matters because rising long-term yields directly depress the fair value of growth stocks, and funds recently flowing into Asia could quickly reverse.
As tensions peaked, the U.S. Treasury intervened on 19 August by announcing it would at least double its long-term bond buybacks from 9 September to 4 November. This immediately helped lower bond yields and weaken the dollar. However, this is not money printing like central banks’ quantitative easing, as the Treasury must issue new debt to buy back old bonds, so total debt doesn’t decrease—only the maturity shortens. The funds involved are small compared to over $600 billion the U.S. government must borrow in Q4. Thus, the measure mainly signals the government will prevent yields from rising too far rather than fixing the root problem, and importantly, it has a clear expiration date.
The second issue is the clear slowdown in the U.S. economy. July retail sales fell 0.6%, the largest drop in over a year; consumer confidence dropped to 51 points; and non-farm payrolls shrank by 23,000 jobs. Oddly, these weak data did not cause bond yields to fall as expected, reflecting market concerns about fiscal health more than the economic outlook. This is dangerous since corporate profits are pressured while financial costs rise simultaneously.
The third issue is the stance of the U.S. Federal Reserve. The new Fed Chair will give his first speech at the annual Jackson Hole symposium in late August, ahead of the mid-September rate decision. His approach is to reduce forward guidance and focus more on structural questions than short-term direction, so no easing signals are expected. Inflation and employment data released mid-September will be the true decisive factors.
The fourth issue is the Middle East conflict and oil prices. If the situation eases, oil prices will fall, allowing funds to return quickly to risky assets. But if the conflict drags on and oil remains expensive, it will worsen both inflation and bond yields simultaneously. Lastly, economic stimulus from China and the Thai government is a factor to watch. For China, caution is warranted as this month’s inflows mainly reflect bargain hunting after deep price declines; the annual cumulative inflow remains significantly negative, so a true turnaround has yet to occur.
Given this overall picture, we have revised up the forecast for the U.S. 10-year Treasury yield at year-end from 4.4% to 4.8%, though we still expect the Fed to keep rates steady this year. The Thai baht is forecast to be around 33 per dollar by year-end, with the Thai 10-year bond yield near 2.2%.
Regarding investment advice, the key principle is to "seize opportunities when they arise, but do not chase prices." For bonds, we recommend focusing on short- to medium-term maturities of about 3-7 years, which benefit when yields fall. We do not advise rushing into long-term bonds because the U.S. government's support measures expire in early November, after which volatility may return.
For investors with higher risk tolerance, periods of falling yields favor growth stocks. Attractive themes include electrical infrastructure, a critical bottleneck for expanding AI data centers, benefiting directly from lower financing costs, and software stocks, whose valuations recover when rates decline. Gold should remain in portfolios as a hedge against government debt issues and geopolitical conflicts.
As for the Thai stock market, a weaker dollar and eased capital outflow pressures are indirect positives. However, key decisive factors remain domestic, including corporate profit recovery and clarity of government policy. The trade deficit from expensive energy imports will limit the baht’s appreciation in the near term.
In summary, September should still see funds flowing into risky assets but at a slower pace and with much higher volatility. Investors should remember that current support comes from technical bond market measures, not improved economic fundamentals. When this support expires, original problems—fiscal deficits, refinancing debt, and energy-driven inflation—will remain. Therefore, disciplined timing and preparation for volatility are essential.
We wish investors good luck.
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