Fed won't hike rates until Dec, more likely in CY17: Geoff Lewis

'Favouring the doves', the poor US economic data does not make for a good case for the US Fed raising benchmark rates in September, said Geoff Lewis of Manulife Asset Management.  Speaking to CNBC-TV18, he said the Federal Reserve will not raise rates until December. However, he believes there is a major chance of the US Fed hiking the rate in 2017.

There have been some improvement in economic indicators in Asia, he said adding, he prefers Asian manufacturers over other commodity producers. He is of the opinion that among the Asian markets, India is good from a long-term investment perspective as Indian valuations are still expensive.Below is the transcript of Geoff Lewis’ interview to Anuj Singhal, Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Anuj: Do you see rate hike coming in September or is this again market’s way of arm twisting the Fed and bit of a tantrum ahead of the big event?A: That is a very good question. I thought that by now the headwinds to the US economy, the inventory correction, the lagged effects will all be wearing off and we will be seeing some good data. However, we have seen some very poor economic data coming out of the US, car sales, heavy truck sales and the long established Institute for Supply Management (ISM) business survey both in manufacturing and non-manufacturing were startlingly weak, dropping quite significantly. That could be just sentiment. They sometimes have done this in the past, but then the market’s purchasing managers' index (PMI) was not that hot either.So, looking just at the data, there is no good case for a rate hike. So it remains our houseview that the Fed will not act until December and even then, if we are seeing this continued weakness, it could be to 2017 until we see a rate hike.Latha: What do you make about the global risk-off that we are seeing, especially the kind of sell-off that we are seeing in bonds as well? Will this become a little ugly? At the moment what are you doing? Staying in cash, if in cash, which currency?A: We are not traders. We are long-term investors, so we do not move around just because the market has had a bad day on Friday. Looking at the course, everybody has said that volatility is going to pick up, that is going to be the problem -- we did not have that volatility and then markets were calm and everybody is saying markets are too calm, this is eerie, this is a problem. And then, after a long period of inactivity, the markets have had a bad day. We do not think this is the start of bond Armageddon or fundamentals do not point to that. But bond yields do look too low to us, so we would not be surprised to see them adjust a little bit by year-end and the lesson from the recent market action is that equities are the higher risk asset categories, so if bonds correct, you will see somewhat bigger losses in equity portfolios.Sonia: We do have some numbers. We understand that the net foreign buying has slowed down quite a bit in the month of September. It is to the tune of around USD 800 million so far and most of that foreign buying is concentrated in markets like Korea, India and Thailand in the emerging market space. What would your own pecking order look like now for the next 3-6 months?A: There have been some improvements in the economic prospects for the emerging markets and some of the brokers are now starting to revise up slightly their economic forecasts for the Asian economies in 2017 particularly the Asian manufacturers. We think that we are not going to see sharp rises in commodity prices. It is an L-shaped recovery. We have just had a rebound if you look at the charts, from fairly depressed levels. So, we prefer the Asian manufacturers to the Latin American commodity producers at this point in time.We think that there are good reasons not to be underweight the Asian region. There is no strong case to be heavily overweight either. So, we are staying diversified. We are watching. We are looking at the global PMIs. So far, the indicators have been rather spotty for world trade manufacturing. We are not seeing a strong pickup but there are sufficient reasons in terms of valuations, improvements in earnings, to have increased your Asian exposure to at least neutral.Latha: What is the India view now?A: If you look at the gross domestic product (GDP), growth has been fantastically strong. But I do not think anybody invested in India on the basis of the GDP data. We do not fully understand them and I do not think many of the brokers do either and a lot of the other data has been rather disappointing. So, still lacks the long-term story, but valuations are not particularly cheap in India. So, for the time-being, it is a bit of a wait and see view from us.