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Delayed US Fed rate hike positive for Asia
Market watchers breathe a sigh of relief as the US Federal Reserve Board (Fed) further delayed a much anticipated increase in the Fed funds rate saying it will keep this key interest rate benchmark near zero until it sees US employment and inflation approaching two percent
The Asset 18 Sep 2015
Market watchers breathe a sigh of relief as the US Federal Reserve Board (Fed) further delayed a much anticipated increase in the Fed funds rate saying it will keep this key interest rate benchmark near zero until it sees US employment and inflation approaching two percent.
 
The announcement triggered a wave of positive comments from Asia market watchers who were mostly agreed that the delay in the rate hike does not change the overall investment outlook for the region and that risk of slower growth and higher inflation remains minimal.
 
“We see the theme of downside risks to growth in Asia and no risk to inflation continuing in Q4 and beyond. With respect to policy action, the best Asian governments can do is support domestic demand through fiscal policy, but the impact is likely to be small and of medium-term nature,” says Taimur Baig, chief economist of Deutsche Bank.
 
“On monetary policy, China is expected to keep easing, while India still has room to cut rates at least once more, but further easing discussions will have to wait to till next year. Economies like South Korea, Taiwan and Thailand may have to grapple with how to support growth as well. Finally, the chance of a FX crisis-induced rate hike scenario in economies like Indonesia and Malaysia is extremely remote, in our view. Indeed, we think Bank Indonesia will cut rates in 1H16 if the rupiah stabilizes,” Baig says.
 
Ken Taubes, Executive Vice President, chief investment officer, US at Pioneer Investments, says his firm’s fundamental investment outlook is unchanged following the Fed announcement.
 
“We continue to like the outlook for corporate and structured credit, and remain cautious on low-yielding developed market sovereigns, including US Treasuries. We remain concerned that short yields are most vulnerable to a sell-off if US economic growth continues to improve, as they hold little to no value. Spread sectors should enjoy good performance in an improving US economy,” Taubes says.
 
Mark Haefele, Global CIO, UBS Wealth Management, says rising Fed funds rates are still expected but since higher borrowing costs to be accompanied by continued growth UBS believes that the outlook for risk assets remains positive.
 
“Equities have tended to perform well in the six months after the first rate hike, with corporate earnings supported by improving economic growth and employment. On balance we believe the best opportunities remain in the Eurozone and Japan, where a combination of easy monetary policy, currency weakness and cheap oil is boosting the earnings outlook for companies. We continue to believe that US equities can grind higher,” Haefele says.
 
“Over the past four rate hiking cycles emerging markets have delivered the strongest performance. But we expect a less favorable outcome this time. Commodity-reliant emerging markets are being weakened by slowing demand from China, with Brazil and Russia stuck in recession, and earnings growth remaining disappointing,” Haefele says.

    

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