US market is enjoying a good trade ahead of Janet Yellen’s commentary on rate hikes. He signaled that central bank could hike rates gradually sooner rather than later as economic growth continues and inflation rises. After Yellen’s remark, dollar inched up by 0.3 percent at 101.230. Does global growth and strengthening of dollar spell bad news for emerging markets?
The general trend is if the dollar and yeilds rise, it turns out negative for the emerging markets. But, Geoff Lewis of Manulife Asset Management believes that global growth will be good for the emerging markets (EMs). However, the dollar moving higher could a pose a problem for the emerging markets, he added.
Speaking to CNBC-TV18, Lewis said, “dollar will move gradually higher and there will be a bit of a headwind for the emerging markets.”
Now the question is if the greenback would be able to sustain this strengthening. According to Lewis, possible short interest differentials have already peaked and the dollar is already 15 percent over valued in purchasing power parity (ppp) terms. He said it is unlikely that the dollar will surge. Hence, the emerging markets will have a good year, said Lewis.
The earning season in India ended yesterday, some companies brought cheer to the market and few results were not up to the mark. Lewis too said that some earnings were disappointing but he maintains a decent macro outlook for India. He said that there is benefit of goods and services tax (GST) coming through and India has a good domestic growth story. India is going to remain a favourable destination for institutional investors, added Lewis.
“As long as we don’t have a sharply rising dollar or big increase in dollar prices, India’s growth will be well placed but it would be nice to see some of the earnings forecast coming through,” said Lewis.
The anticipation in the market is whether Fed will increase interest rates in March and what will be the pace for the rate hikes. Lewis said that Fed should stay cautious. “We do not see any strong reasons at the moment for changing this gradual path, he added.
He also said that the US economy has started to pick up and due to this there is nothing on the inflation front for the Fed to bring rates forward.
US market has been hitting new highs in the past few days and the S&P 500 did not see one percent correction in the last 85 trading days. But according to Lewis, it is not wise to time the US market and people should remain invested.