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The US Federal Reserve which is scheduled to report its policy decision later in the day is unlikely to raise interest rates but the commentary from US Fed chair is something which could sway sentiments in the short term.
“The market will be looking for any clues from the language of commentary by US Fed as to when the next rate hike is likely to come. We expect one rate hike to happen in June and then one further rate hike in fourth quarter,” Geoff Lewis, Global Strategist-Capital Markets Group, Manulife Asset Management told CNBC-TV18 in an interview.
I don’t think there would be any surprises and market is likely to move a little bit (volatile) closer to the US Fed decision of the language is sufficiently hawkish, he said.
The US Federal Reserve started its first tightening cycle in more than a decade last year. A quarter percentage point was increased last December which was followed by two meetings later by another hike in March 2017.
EMs along with Indian market have already given double digit return so far in the year 2017, but it is unlikely that market will be able to offer a good return in succeeding quarter after seeing outperformance in the first quarter.
“It is unlikely that you will get a good return in succeeding quarters as we did in the first quarter. But, nevertheless, there is very good reason to be overweight on EMs in 2017. Given a choice between EMs and Europe, I would prefer EMs,” said Lewis.
Commenting on the momentum, Lewis said a short-term correction could be in offing but beyond that, we would see momentum as international investors are slowly returning to EMs.
EMs have seen very strong upgrades stronger than any other region in terms of earnings and there is no longer growth advantage for the developed economies over the EM economies, said Lewis.
“Within the EMs, we are overweight on China and in terms of the region we prefer Asia over Latin America,” he said.
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