Fed rate hike seen to have limited impact in Asia

17 March 2017   Category: News, Asia, China, Hong Kong, USA   By Natalie Leung

The US rate hike didn’t faze Asian markets on Thursday.

Luke Spajic, Singapore-based head of portfolio management of emerging Asia at PIMCO, notes that equity and credit markets across Asia have responded positively to the US Federal Reserve’s (Fed) well-anticipated rate increase and almost dovish tone.

“Across Asian risk assets, we view this as an opportunity to fade some of the strong returns seen year-to-date,” Mr. Spajic tells Asia Asset Management (AAM). “With the Fed move out of the way, we also anticipate a resumption in capital market activity, especially new issues, corporate credit and sovereigns looking to complete funding in 2017.”

The Fed on Wednesday [in the US] raised its benchmark fed-funds rate by a quarter percentage point to a range of 0.75%-1%, and pointed to a gradual rather than quickened path of further increases, maintaining its outlook for two more rate hikes this year and three more in 2018.

Following the Fed’s move, China and Hong Kong also increased interest rates on Thursday.

Jeik Sohn, investment director at Asia at M&G Investments, tells AAM that emerging markets and Asia are more sensitive to positive changes in global growth rather than the impact of higher interest rates and a stronger US dollar.

“With a few exceptions, emerging market countries have strengthened their balance sheets and reduced external financing requirements, mitigating the impact of these negatives,” says Mr. Sohn.

According to Bryan Collins, fixed income portfolio manager at Fidelity International, there are “interesting opportunities” in the region. “We continue to see interesting opportunities emerging here in Asia, particularly for companies with a strong domestic demand focus as well as those benefiting from policy reforms and strengthening regional capital markets,” he tells AAM.