Fed's taper holdup suggests loose policy to stay: Aberdeen

The Fed's move to postpone QE tapering suggests a policy to remain loose in the near future, says Peter Elston of Aberdeen Asset Management. In all likelihood, he feels, the US debt ceiling will be increased. However, he is not too worried about the ceiling issue. “It may cause nervousness but won't derail equities," he told CNBC-TV18.   

For emerging markets, he suggests adopting a bottom up perspective, not just the top down one. "We do feel that there are companies in emerging markets, not just India, but all around the world that should be avoided and can be avoided with some simple research," he says. Below is an edited transcript of the interview on CNBC-TV18 Q: What is the sense you are getting about entire tapering theme? We have had a great September after that huge summer selloff. Is it likely that we are going to get that finally awaited tapering news in October? Will October be a decisive month?
A: Who knows? It was certainly a surprise last week when the Fed didn’t announce that it was going to begin its long-term asset purchase programme reduction. I think most analysts had believed that it was going to happen this month on the basis that economic growth wasn’t weak enough to maintain the programme and also many thought that the Fed would lose credibility if having said that it might taper than didn’t. So, it was a surprise for market.
Where are we now? I think the Fed has sent a clear message that it will not tighten until we see unemployment fall too much lower levels and given where we are now that means that policy is going to remain loose for sometime. So, it seems to me that it won’t be happening in the near future but who knows, it’s become rather difficult to predict what the Fed is likely to do. Q: Would you be worried at all about the impending budget standoff on Capitol Hill and does this trigger have the scope to derail equities?
A: I think it has the scope to cause nervousness in market. There are analysts who are talking about the likelihood of it not being passed that the Republicans will block an increase in the debt ceiling. I think that is very unlikely. I think there are many on the Republican Party who would like to see the debt ceiling not increased but at the end of the day the party will not want to be seen as the party that caused a default. So, like in previous situation this will go to the eleventh hour, market will be on a drive to the last minute but the likelihood of the ceiling not being increased is very low. Q: Do you think this emerging market rally from sheer relief that tapering won't happen has more legs and particularly do you think India would be an outperformer considering that the rupee has been an outperformer?
A: I think it does have more legs. Think about the damage that was caused between May and just two or so weeks ago and that damage was very significant both with respect to currencies, with respect to market, equities and bonds alike and so this relief that has been provided by the Fed announcement can continue for a little while longer. I would say, however, that as an investor it is very important to look at market from a company perspective rather than a market perspective.
We do feel that there are companies in emerging markets, not just India, but all around the world that should be avoided and can be avoided with some simple research. So, very important to look at these emerging markets from a bottom up perspective, not just the top down one.