Bulls in emerging markets may continue to be on a roll: AMP Cap

The bullish trend in emerging markets is likely to continue, says Shane Oliver of AMP Capital Investors in an interview to CNBC-TV18 sharing his expectations from the upcoming meetings of Bank of Japan (BoJ) and US Federal Open Market Committee.

While Oliver believes the market does not have huge expectations from the BoJ, JPMorgan AMC’s Ben Luk feels BoJ may, in fact, surprise on the downside.

Luk believes the FOMC meet will be a non-event this time but there could be a rate hike in December.  Below is the verbatim transcript of Ben Luk & Shane Oliver's interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal.Latha: What is your assessment of what Bank of Japan (BoJ) might do?Luk: The most important thing looking through the comprehensive review is that the biggest problem for us is whether or not they are going to go through with further quantitative easing or just a fine tuning of what they currently have. Our base case scenario is that they will not pursue further monetary easing but it\\'s just fine tuning on how to deliver those monetary easing into affecting the real economy. Therefore, we do still expect our negative rates to go down further from negative 0.1 percent to negative 0.3 percent. The caveat for that is that they have to do something to step-up and support the bank\\'s profitability because that affects the net interest margins. However, on the other hand we expect that they are going to focus on steepening the yield curve. This is something that is important for them on a longer term because it has been relatively flat for the last 18-24 months. So we are expecting a fine tuning of how they are going to purchase the Japan Government Bonds (JGBs) and focusing on shorter directions from five-ten years now instead of focusing on longer end of the curve, but overall it is going to be more of a surprise on the downside given that a lot of market participants are expecting another bazooka style of a monetary easing from Bank of Japan but I think right now what we are seeing is that they are trying to push away from further monetary easing and actually doing through this fiscal push instead.Sonia: Whatever the outcome is from both the Fed and BoJ, do you get a sense that this bull market that we are seeing in emerging markets could continue?Oliver: I think it probably will. Obviously, there is a lot of uncertainty in the very short-term about the Bank of Japan and tomorrow for the Fed. Of course, the Fed\\'s stance is more aggressive, more hawkish and there could be a bit of setback for the emerging world but by the same token if commodity prices continue to stabilise, global shares continue to trend higher then I think in that context the emerging world is likely to see continuation of its bull market. So the picture for emerging world is improved. If you look at it in a relative sense, it had a long period of underperformance, the five years of underperformance that dramatically improved valuations which along with the few add effects is up for a better outlook going forward.Latha: What is the expectation in terms of the impact on stocks itself even if one assumes that there is a cut from minus 0.1 to minus 0.3? Of course we are going to see an impact on Japanese banks but for the Asian or emerging market equities which are currently trading at this moment. Will there be a very big impact?

Oliver: Probably not. I think the market is not overly optimistic about what the BoJ will do today or fairly soon. The expectations are running fairly low given the disappointment of the last few meetings. I think it always says we are fine tuning including regarding the policy rates but the impact will be relatively minor in terms of market and probably a bigger one on the Japanese market potentially but my feeling is that the Bank of Japan really needs to engage with the Japanese government with helicopter money but I do not think they are prepared to do anything like that at the moment.