The US Fed kept rates unchanged on Wednesday while explicitly saying it intends to move off its zero rate policy. Speaking about the sudden overt reference to rate revision in December, Ian Hui, Global Market Strategist at JPMorgan Asset Management said he assigns a 45 percent chance of a rate hike in December.
The US Fed kept rates unchanged on Wednesday while explicitly saying it intends to move off its zero rate policy in December. Speaking about the sudden overt reference to rate revision in December, Ian Hui, Global Market Strategist at JPMorgan Asset Management said he assigns a 45 percent chance of a rate hike in December.
Speaking to CNBC-TV18, Hui suggested Fed's statement is essentially sentiment-positive which will fuel a rally in US and developed markets. He said the mood will also aid exports of emerging market economies which have recently started seeing fund inflows.
Hui is positive on India on the back of reforms, though approach towards land reforms and GST has "disappointed." The improvement in `ease of doing business' will also favour India, he pointed out.
Below is the verbatim transcript of Ian Hui's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: The odds have risen for a Fed rate hike, do you think the markets could see more rallies as we get closer to December?
A: Yes, I think that is quite possible, we could see more rallies. It does seem that the Fed statement has raised people's expectations for the US strength. I think for the moment at least the prospects of a stronger growing US will outweigh most of the other worries that we have seen. So we could see some more rallies on the back of this.
As already mentioned from the announcements of the Fed's latest statements, it does seem we have a greater chance of a rate hike in December. There is just a tick over 45 percent at the moment.
Sonia: Given that the belief is that the US economy is now doing well, what is your sense about the developed markets and the emerging markets debate? Which asset class do you think could do better in the next six-twelve months?
A: Over the next six-twelve months, we are still looking at risky assets. We still believe based on a potential rate hike, it should be equities still over fixed income just based on what we do expect to happen when interest rates do start rising in the US. We do know that the Bank of Japan (BoJ) and the European Central Bank (ECB) are still looking to ease more. We still would be more positive on equities.
Sonia: My question was more to do between developed markets and emerging markets where do you see the higher scope of returns?
A: On developed markets versus emerging markets we are still more positive on developed markets at the moment. The emerging markets still have to deal with the weak global trade, sluggishness in China. China is the main driver for emerging markets right now. We do see some weakness there, we do have some hope that after the meeting of the various leaders there, there may be some statements forthcoming for their plans for economic growth and more reform that might revitalise and cause a catalyst to see some more positives in the Chinese market and the Chinese economy.
Latha: Over the last couple of weeks, we have seen funds returning to emerging markets. Does that continue or with the Fed statement, there is a greater flow of funds, a reversal of funds towards developed markets?
A: I sort of think about we have seen a bit of a calm down over the panic that we have seen most recently. So there is still some funds going back to emerging markets. The positives from the strings of a US economy probably outweighs what people worry about a rate hike would cause with the US growing most strongly that should mean better news for global growth, more demand for emerging market exports, which should help things. So we are still seeing a bit of better news for those EM flows but our view overall is still mainly the developed markets over the emerging markets based on the relative growth.
Latha: What about the pecking order in the emerging markets? We had some bad banking numbers in India, that is a domestic story but what is your pecking order?
A: I still remain positive on India over most of the other emerging markets mainly still based on our policy reform view. Yes we do know land reform, goods and services tax (GST), they still have disappointed a bit, there still seems to be some stalls in investment but business is improving, policy is improving there, this does seem to suggest that India is improving its ease of business ranking in the world. So I am still positive on India.
China is a bit trickier. We are probably still waiting to see if there is any policy reform, it would mean that there is some positive in China. Most of the other emerging markets are very wary, there is still weakness in global trades and mostly those emerging markets that are reliant on trade are still probably going to face a bit of a weakness.
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