Asia heading into Fed taper on a ‘strong and stable note’, UOB says
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According to United Overseas Bank strategists, the widely expected U.S. Federal Reserve move to speed up its end of its bond buying program will not cause volatility on Asian markets.
This week’s U.S. central banking meeting will be held. It is expected that it will reduce its bond purchase and taper its monthly monetary policies. by $30 billion a month startingThe current $15 billion is only $11 billion. It is expected that the Fed will raise interest rates by 2022.
When it ended its asset acquisition program, the Fed created a “taper panic” in 2013. An investor panic caused a sell-off of bonds and pushed Treasury yields up. The result: Emerging markets in Asia experienced sharp capital outflows as well as currency depreciation. As such, central banks of the region were forced to increase interest rates to protect capital accounts.
“Asia, in general, so far all central banks have been very well prepared. Record high FX reserves. The Fed’s tightening view has been widely communicated. We should be able to handle a bit more of the so-called outflow of hot capital when the Fed does start hiking,” Heng Koon How, head of markets strategy at UOB, told CNBC’s “Squawk Box Asia” on Monday.
In early 2020, the Fed established a bond-buying program to assist the financial market and economy in cushioning the effects of the coronavirus pandemic.
Heng Asia’s strong economic fundamentals will also be a support for countries within the region, and may help to weather any Fed bond buying.
China has been guiding Asia’s economic development. He noted that our economic models have been all exported-driven, which helps to create a favorable environment and strengthens local currency stability. “We are going into the Fed increase on a solid and stable note.”
Alexandre Tavazzi is a global strategist at Pictet Wealth Management and the head of Asia CIO. He said that countries across the region are optimistic about the future.
This is particularly true of the Association of Southeast Asian NationsTavazzi spoke of those whose economies were hit by the pandemic.
“Their economies were hurting in 2021 because of Covid,” he said, adding that ASEAN is one of the few bright spots in the world where the growth outlook is “rather strong.”
“ASEAN countries are unique. “It is the only area on the planet where 2022’s growth rate will be greater than 2021,” Tavazzi stated.