Here's what experts have to say about Fed rate hike

UBS expects Eurozone and Japan to give healthy returns in the coming year.

Ethan Harris, Co-head – Global Economics Research, BofA Merrill Lynch, believes emerging markets are more susceptible to weak commodity markets, which is a bigger problem than the Fed.In an interview to CNBC-TV18's Reema Tendulkar & Nigel D'Souza, experts like James Glassman, Senior Economist at JPMorgan, Jonathan Barratt of Ayers Alliance, Peter Hooper, Managing Director-Chief Economist, Deutsche Bank Securities Inc, Seth R Freeman, CEO and Chief Investment Officer at EM Capital Management, LLC, Hartmut Issel, Head-Equity & Credit APAC at UBS and Ethan Harris, Co-head of Global Economics Research at BofA Merrill Lynch shared their readings and outlook on the Fed rate hike and also expressed views on commodity market as well.

Below is the verbatim transcript:

Reema: We have got what we wanted or we got what we were expecting, what does it mean for the emerging markets and India in particular and lot of the experts we had spoken to prior said that 25 basis points was in the price and is factored in, so do you believe after today’s reaction it will back to normal?

Glassman: I think so, I think this is turning out to be entire climax, as many have talked in past, because the Federal Reserve has done a fair amount of work, preparing the market for this process. Therefore, going forward there will be lesser anxiety about what the Fed Reserve is doing because as they said they are going to be doing very cautiously moving - and only moving back to something more normal as the economy continues to progress. I think the progress will begin to shift back to underlying positive trends in the developed economies and I think the entire emerging markets probably will fade, is my guess.

Nigel: The last time around you told us that you will sit on the sidelines a bit till in fact the dust settles. Now it appears at least we got one trigger out of the way. What would you do with gold? Would you be positive on gold from here? I remember you had a long standing bullish call on gold and then you said let us sit on sidelines a sometime- where do we go from here on gold?

Barratt: I think we got to really see how the Fed is actually feeling in terms of what the inflationary pressure are but most importantly what the US dollar is going to do. So, for me, we listened to what the Fed has said, we listened that things are going to be gradual; inflation is going to be gradual and soft. We are looking at much price pressure to the topside when we look at the inflation side.

However, what we are going to focus a bit more is what we are going to see with the US dollar given the change. There is certainly a lot rate regarding this, suggesting the dollar will appreciate like bearishness. I have a bearish view on the US dollar at the moment and that will support the gold market.

Remember, gold has been in such a range, tested the lows a few time so technically you would find that it want to get support and it will get that support. We know few of investors we believe that US dollar will be weaker, will also get that support from those inflationary watchers as well which is suggesting that with growth must come inflation. So perhaps it is an area to start to look into.

Nigel: You had told us in the past that you are expecting the Fed to hike rates at a slower pace. Was it as slow as you expected? Do you like the commentary and also what is your outlook on emerging markets particularly India going ahead.

Hooper: I think the Fed orchestrated this very carefully. They had everyone well prepared; we got just about what we expected. It was a relatively dovish statement to accompany lift off although they didn’t change their dots enough to change the median. However, still four rate hikes next year, I think the center of the committee and Janet Yellen is expecting three which is right in line with our expectations and overall this is good news for the markets.

We have the US economy that is doing relatively well; well enough for the Fed to feel confident about going ahead and raising rates and they told us they are going to do so fairly slowly. So, risk assets overall do reasonably well in this environment. I am not expecting additional significant stress for emerging markets and my sense is that India overall is near the top of the hill point in the emerging market space. So, I will be relatively optimistic there._PAGEBREAK_

Nigel: What is your take post those statements, more or less on expected lines and also do you expect India to get some part of the flows. In the past you have maintained that for majority of 2015 you expect foreign flows to come into India that has not really happened at least for the last couple of months? Now you believe that money will slowly trickle back into India?

Freeman: Well, at the least this minor rate increased today takes away the need to continue speculating about if and when and investors always do like some certainties. So, this is a plus towards the certainty column.

The commentary out of the Fed today was important in particular that this was a unanimous decision. I think that is very good sign from a policy standpoint and a recognition that may be it wasn’t so urgent to do now. However, I think that this should be good for all investors looking at emerging markets except the fact that this put pressure on foreign currencies.

Reema: What implications will this event have on various asset classes? How do you see the US equities, the dollar as well as the emerging markets play out from here?

Issel: The tilt was maybe slightly dovish if I look at the dot-plot. So, basically, the Fed’s own rate hike expectation especially the 17th, slightly more dovish and also the inflation projections especially the personal consumption expenditures (PCE) inflation. So, probably a little bit for everybody but at the same time very clear and the language gets much more decisive now that if they are comfortable about the balance of the risk and they are also more comfortable of inflation eventually getting where their target is that is good news for the US economy.

However, I would really spin it off through a broader context. It is not only the US economy on very strong footing right now and we have more signs of China stabilising, we have very strong purchasing managers’ index (PMI) out of euro zone and we just studied that Japan avoided a technical recession. So, the global setting is fairly strong and of course the US is a key pillar of that. However, if you ask me on assets that we prefer, we do think this is a necessary condition that the US is, but actually we think the best returns can come out of the euro zone and Japan.

Latha: How should an emerging market investor read the Fed's cues. In the morning Asian markets and the emerging markets are marginally higher; it is not a runaway rally. Should we expect that we are not going to see a return of funds to emerging markets (EM)?

Harris: The message from the Fed move today is a positive one, in the sense that global markets have been waiting a long time to see the Fed move and there have been a lot of concern when the Fed delayed the rate hike because there is a sense that the Fed has so little confidence in the US economy, was unwilling to move. However, now that the Fed has hiked and they have also sent a message of gradualism that they are going to go very carefully here and this is kind of a bode of confidence in the US economy and so from the point of view of global markets, there is a big difference between the Fed hiking interest rate in a big battle against inflation which is bad for risk assets and global markets but Fed that is raising rates because the US economy is healthier, is something the market can handle.

Latha: There are still problems of commodity prices not being able to improve at all. Crude inching lower and now even below their 2008 levels on few days and few hours as well basically when it is a rate hike syndrome, you could see some bit of money moving away from emerging market bonds equally for both reasons, how should an emerging market equity investor interpret the next two months in terms of fund flows?

Harris: I think there is certainly a risk. When the Fed is hiking it, it attracts money into the US. However, for commodity producers this has been a terrible market and investors are very concerned about the continued drop in oil prices, but I do not think of this as a bad environment in the sense that this is not going to be look to taper tantrum of 2013 when the market completely surprised by the Fed saying that they are going to start to ending their bond buying programme. This is more something which took long-term to prepare for and well telegraphed by the Fed and so it is easier to absorb but the general weakness in growth in emerging markets and the fact that many of these economies are sensitive to commodity markets and that is going to be an ongoing problem. I do not think the Fed is a problem. I do think weak commodity price is a problem.

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