US rate hike won't hurt some economies
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COUNTRIES with current-account surpluses and net oil importers will not be affected negatively by capital outflows once the United States raises the federal funds rate, according to Citigroup. Haren Shah, Citi's chief Asia-Pacific investment strategist f
Shah added that emerging markets that are net oil importers would see a reduction in their current-account deficits as well if the Fed raises the key rate.
Mainland China, South Korea and Taiwan are among the economies that will benefit from a rise in the Fed funds rate. The prospects for the stock markets of those countries will be positive, he said.
On the other hand, Brazil and South Africa are likely to see negative impacts from the rate increase as those countries have current-account deficits and are oil exporters.
Citi estimates that the Fed will raise the interest rate some time between September and December.
Although sentiment levels in emerging markets remain weak, Citi has an overweight position in Asia because it is the only region whose emerging markets continue to trade below their means.
Citi forecasts growth in emerging markets’ overall gross domestic product this year at 3.8 per cent, and 4.6 per cent next year.
The financial group yesterday lowered this year’s GDP growth forecast for Thailand to 2.7 per cent from 3.5 per cent.
Shah said Citi had advised Thai investors that even though the stock market is volatile, they should give importance to fundamentals rather than emotional sentiment.
Citi has overweighted on stocks as a more valuable investment than fixed-income products, he added.
