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See volatility post Fed hike; India best bet among EMs: Hui

The chances of a US Federal Reserve interest rate hike in December are high and despite the Fed trying to prepare global markets, post the increase, there will be volatility, says Ian Hui, global market strategist at JPMorgan Asset Management. Hence, from now to the event, there will some uncertainty in the markets, he says.

Once the Fed interest rates hit the markets, emerging markets will perhaps come under some pressure, he told CNBC-TV18.

He says the attitude of global funds towards emerging markets will continue to remain cautious considering China is still a worry, dollar too, among others. However, he believes India still continues to be the best bet among EMs. “If something good comes out of the winter session, it would be very good for India,” Hui adds.

Below is the verbatim transcript of Ian Hui’s interview with Latha Venkatesh & Sonia Shenoy.

Sonia: The next big cue that everyone is watching out for is the Fed meeting on December 15. Up until then how do you see the global equity markets move?

A: We have the Fed meeting in December. I think until that happens, unless something majorly happens in market elsewhere, I think will sort of be relatively calm. When or if the rate hike comes, there definitely will be volatility afterwards though. I know most markets have been expecting this rate hike to come for quite some time. Hopefully we should be relatively well prepared for it, a lot has been written, a lot of expectations have been heard about it but there is still going to be volatility and uncertainty when it finally hits. The Fed has made quite a lot of statements changes since the September meeting to try and calm market, to try in the direction that they think they should be prepared in, but nevertheless there is too going to be some volatility when it hits and between now and then probably it is going to see still some uncertainty, but I do not think there should be any major movements.
Latha: Would the nonfarm payroll numbers next Friday be very critical. Will it give the market a certainty about the Fed action?

A: I think it would definitely help push in one direction. If they come out very good, I think that would lean more towards a possible rate hike in December. At the moment the market thinks that pricing in a rate hike more certain than not. So if the unemployment and the claims do come out to be better, I think that definitely leads a bit more certainty to a possible rate hike.

Sonia: In terms of dollar index – what is your view now because there has been a big bump over there? It’s almost at 100 mark. Do you see more appreciation of the dollar index and a concomitant impact on emerging market currencies?

A: Yes, if we didn’t get the rate hike. We probably do expect the US dollar to grind up further. I do not think not quite as quickly as it does over the last few months ever since the sentiment swung more in the direction of a Fed rate hike but I do expect the US dollar index to go further based on expect out of the Fed. Is that going to have a negative impact on emerging markets? I do unfortunately think that probably it’s going to happen. I do think that the US dollar rising is probably a bit more of a worry for emerging markets, more so than the actual rate hike itself. The actual rate hike will cut down liquidity. The most other central banks in the world, I would see at the moment, they are sitting on easing path, so that should still have liquidity levels but a higher US dollar especially what that means for the debt servicing for corporate and government that has debt in US dollar terms also any other transactions that has to do with the US dollar, a rise in US dollar is most likely going to be negative for them.
Latha: For the remaining part of 2015, you do not see the attitude of global funds to emerging market changing. For that matter the attitude of global funds towards India. What would your comments be?

A: On emerging market, still plenty of worry there. China is still a concern, commodity market still a concern, US dollar is still a concern. Therefore, as you mentioned, I do not expect a huge turnaround unless we see something very positive for those factors.

On India, my view is still the same. Out of all the emerging markets, I think India is probably still positioned to be one of the better ones. India is less reliant on China and global trade overall as a percentage of its gross domestic product (GDP), still a significant amount but probably not to the extent a lot of the other Asian countries are. I do know that a lot of hopes were pinned on the reform issues in India probably that hasn’t quite gone as well as hoped. We are going to have another government session starting up in India soon. If something positive comes out from that, I think it really help a lot of sentiment that even if it doesn’t, the government still has made quite a number of measures to try and prove the Indian economy. They are still trying to push reforms which should be a positive. I think at the end of last week some various reform measures were taken and that should help wave the recent disappointments that we have seen in India and a result we still that India is positioned a bit more positively compared to the rest of the other emerging markets.

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