EMs less dependent on trade with US will benefit more: Hui

Global markets have already priced in a rate hike from the US Federal Reserve expected later today, said Ian Hui, Global Market strategist at JP Morgan Asset Management. The market analysts will closely watch Janet Yellen’s commentary on inflation and gross domestic product closely. The Fed will also have to clarify whether it can undertake the fiscal stimulus that President elect Donald Trump’s government is planning. Yellen is likely to sound more dovish, Hui said. Hui further said that improvement in developed markets could have a trickledown impact on emerging markets. Markets that are less dependent on trade with US are likely to benefit more in EM basket. India could be a beneficiary here, Hui added.Below is the verbatim transcript of Ian Hui's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: The expectations are well laid out, 25 bps rate hike by the Fed but what do you expect to hear in terms of the sentiment from Janet Yellen, she is known to be a dove so far, do you expect dovish cues this time around as well?A: A lot of anticipation for what is going to happen tomorrow morning. I do think what most people expect or what most people will be waiting for is Yellen comments after the actual meeting, the market has pretty much priced in 100 percent chance of a rate hike. If we don’t get that, that would be a very big surprise for the market but as I mentioned a lot of attention will be on what she says afterwards.The change in the Fed's forecast and also the forecast for the GDP growth -- we know the market pretty much expects the fiscal stimulus to come in -- we will see some of the Fed's own views whether they are confident in that going forward or not, whether they will think that it is appropriate to have the amount of fiscal stimulus that the government is planning, we will hopefully going to see a lot of comments on whether they are going to see -- at the moment -- perhaps two rate hikes next year or more, we would see if the change in inflation expectation, change in oil prices or what is happening in the US economy change, how the Fed views their own forecast, a lot of that will be quite important. However, as we mentioned, Yellen is generally seen as a more dovish member of the Federal Reserve. So I think in general the view will probably be as well be more dovish.Latha: Will not good growth in developed markets ultimately mean good news for some EMs as well? So is it going to be all negative news for the short EM trade, will that end sometime?A: I think it should end. The bad news for emerging markets should end eventually. There has to be a point where the US dollar will continue -- to continually strengthen a lot of the movement in the US dollar, I hope is already fairly much priced in. I do think that improvement in the developed market should have some positive spill over effects in emerging markets either in trade, either in growth prospects, either in commodity exports. I do think that positive spill overs won't be as strong as we have seen previously before in history. More recently in the last few years, we have seen positive growth in the developed markets or positive growth in export trade in the developed markets has had a less of effect on emerging markets. So it was not as strong as it was for but it still has some positive effect. I do think it is totally bad news for emerging markets.Anuj: This year we have seen Dow up 14 percent, Indian market is flat, the Chinese market is down 12 percent. So the contrast has been remarkable. In 2017, do you think the larger theme will still remain developed market outperformance even if EMs don’t fall too much or do you think EMs could outperform a lot in 2017?A: I think that question depends very much on how we see developed market and emerging market growth differentials. If the developed markets do a bit better than expected in emerging markets then we will still see some weakness on the emerging market side. However, I don’t think it is totally bad news for emerging markets as I said before. We are seeing the commodity markets improve. We are seeing oil prices improve, China seems to be stabilising. In general, we are seeing generally fairly positive numbers for emerging markets but I think as long as that growth differential between the developed markets and emerging markets going to shrink, which I think at the moment, the market pretty much expect will continue to do so, I think that the emerging market growth performance is going to suffer slightly.Sonia: So within emerging markets, what do you see as the pecking order in the first half of 2017?A: I think for emerging markets those that are slightly less reliant on trade with the US are probably going to do a bit better. Within that I do think India is probably going to be one of the beneficiaries there. Also, those countries with better current account balances, stronger results are most likely going to do better especially with the pressure that we are seeing on their currencies due to strength on the US dollar. So I think once again India probably slightly going to do better in that position, Malaysia probably going to suffer slightly, China we are still seeing as relatively stable but I think it will vary across a number of countries. As I mentioned earlier, commodities, oil prices do seem to be improving or stabilising, we did see some good news for oil dependent countries with various non-OPEC members and OPEC members saying they might cut even more so that could mean some better news for commodity and oil exporters as well.