Divided Fed could delay QE taper, benefit EMs: Chris Palmer

Christopher Palmer of Henderson Global Investors sees better times ahead for emerging markets (EMs). The tapering of monthly bond-buying programme by US central bank may be pushed back beyond December and into 2014, which means slightly easier and better prospects for EMs, he tells CNBC-TV18.

Palmer sees challenges of a divided Federal Reserve for the newly-appointed chairperson Janet Yellen. The markets have also fairly priced-the implications of her appointment, he adds. Also read: Market to react positively to Yellen's appointment: Gokarn Below is the edited transcript of his interview to CNBC-TV18. Q: How do you think Janet Yellen's appointment as Fed Chairman is going to impact markets? I know at this point in time markets are likely focused on what is going on with the US government? A: This announcement possibly was moved forward just to shore up the financial markets and give a bit more confidence to markets in light of the shutdown. It was widely expected and the markets began to price in fairly effectively what a Yellen chair position at the Fed would mean. Q: Do you further push down your expectation of the beginning of a taper? Many people thought it might now be pushed to December, some say early next year. Will the appointment of Ms. Yellen might even mean that second quarter next year? A: As she takes up her position at the Fed, we still have a Fed that was divided the last time when the taper was on the table. That dynamic will not change. However, it does appear that we are beyond December and into 2014, but still she does face the challenge Fed’s division. Q: Despite that challenge, given her monetary policy beliefs, are we more likely to see a Fed taper begin in March next year as opposed to January? A: That it is pushed out. I am not going to commit myself to a date, because we are going to learn more from the Fed. We will see the taper probably extended and different language being used to introduce investors to how that withdrawal will occur given the turmoil over the summer. It has broadly positive implications for a variety of markets; more stability and less volatility. By extension that is going to mean slightly easier and better prospects for emerging markets. Q: Regarding the US shutdown and the deadline approaching for debt ceiling; we are seeing some recovery in the dollar today and yields do not seem to be spiking. We are at 2.62-2.63 percent for the US 10-year. What do you make of the resolution of this situation? What is your longer-term view on the dollar and the 10-year yield keeping in mind Yellen's nomination? A: Once the parties begin talking and horse trading around the issue of the budget and the debt ceiling, the impasse will be broken relatively quickly. It is a matter of just a few hours of negotiations so that they may take it to the very end of the time period. I do not think it should surprise investors. Once it is broken, we will most likely continue to see a somewhat weaker dollar due to the changes at the Fed and US bonds or 10-year stabilise around these levels. All of that is relatively good for emerging markets. It is also relatively good for Europe which is also recovering. So once this impasse is over we should see a better prospect for the markets into the close of the year.