Neal Bhai Reports — We Expect Fed to Raise Rates in December — The possibility of a rate hike by the US Federal Reserve in December and the US elections in November will keep markets volatile, according to Ryan Stork, chairman and head of Asia Pacific, BlackRock, the world’s biggest asset manager. In an interview with Nishanth Vasudevan and Dia Rekhi, Hong Kong-based Stork, who is part of the asset manager’s global executive committee, spoke on various subjects, including Brexit and the outlook for India and China. Edited excerpts:
How do you expect the Fed to go about raising rates?
Our expectation is that we will see a December move. There are two points I will make: one is that post the December move, it would be gradual. I don’t think there will be an exponential rise in shortterm rates. The US Fed as well as the other central banks around the world are increasingly aware of the impacts outside of their countries, relative to the impacts that are occurring in the domestic markets. That is healthier in the context of where the monetary policy is going to go and when will those moves take place.
What would be the trajectory of the hikes?
Our expectation is that it won’t be aggressive. There will be a move in December, and after that, I think, there will be a pause and reevaluation. The Fed will wait for reflation and continued job growth before making any serious moves thereafter. But I don’t expect it to be aggressive.
What does this mean for the rest of the world, especially emerging markets?
There are a few components to the increasing demand in EM both debt and equities. There has been quite a significant amount of supply that has moved into both components of the EM capital markets in the last six-nine months. That’s been a function of a quest for yield and return. Post Brexit, we saw a lot of cash flow into EM debt and equities. We are still quite optimistic, in particular on EM equities but still selectively, there’s continued demand in EM debt that we would foresee. That’s also both an absolute opportunity and also relative to where expected returns are going to be.
Are currencies vulnerable if withdrawals are more than expected?
I don’t see a race to the bottom in global currencies. You saw this in Janet Yellen’s remarks back in the first quarter of last year where as and when the Fed moves, they were quite conscious of the fact that the impact would not just be on the US dollar but on currencies relative, too, around the world.You see more stability in the renminbi, more stability in the rupee.You are going to see at least an awareness about the currency impact around the world as central banks run out of effectiveness in further monetary stimulus. I don’t think there will be enormous volatility in global currencies. — Gold Silver Reports