The US Fed stumped the markets on Wednesday by its decision to continue with its $85-billion bond-buying programme. Brokerage houses give their take on a move largely seen as unexpected.
Markets are thrilled and the much-needed reprieve for the battered Emerging Markets (EM) investors is on its way, said HSBC. Even India and Indonesia, experiencing balance of payments pressures of late, should benefit nicely, said Frederic Neumann, co-head, Asian Economics Research.
“With Chinese data having turned up, and the Bank of Japan running at full speed, it looks like Asia might get its mojo back. Whether this will stick depends on reforms. The window will not be open for long: The Fed still thinks it will be done with QE by mid-2014 and tapering has probably been postponed by only three months,” said the note by Neumann.
According to the global financial major, the Fed decision is a “big relief for Asia’s hard-pressed emerging markets”. HSBC, however, said it expected that the FOMC will decide to start moderating the pace of QE purchases at its December meeting. By that time, fiscal policy risks, which appear to have played a part in staying the Committee’s hand on tapering at this time, should be resolved, and policymakers should have enough evidence by then of a modest pickup in economic growth and a rebound in the inflation rate closer to its 2% medium-term target, said the global financial major.
In the context of the recent sell-off in the Asian markets, HSBC said that the “plunge... had much deeper sources” and tapering fears were just a trigger.
“In many Asian economies, growth fundamentals have gradually deteriorated for years. Easy cash has been a decidedly mixed blessing for the region. While it helped to buffer export-dependent economies from the malaise in the West, it also blunted any incentives for structural reforms and enabled a dependence on debt to sustain prosperity amid slowing growth in productivity,” it said.
However, it went on to add that the fact that the money train will continue for a while means the risk of a hard-landing or a balance of payments crisis has