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Asia can withstand Fed tapering, say analysts

Publication Date : 03-12-2013


The tapering of the United States Federal Reserve's quantitative easing will not necessarily mean bad news for Asian economies, analysts have said.

Glenn Maguire, chief economist for the Asia-Pacific region at ANZ Bank; and Manu Bhaskaran, partner and head of economic research at Centennial Group, both expressed optimism at the ST Global Outlook Forum on Friday in Asia's ability to withstand the tapering of the Fed's US$85 billion a month bond purchases.

Making his case, Maguire - who expects the taper to happen in March next year - pointed to the recent show of confidence in the US stock markets, with the Dow Jones and Standard & Poor's 500 (S&P 500) indexes closing at record highs last Wednesday and the Nasdaq at a 13-year high.

He told an audience of about 400 business leaders, academics and government officials during a panel discussion on the big picture for Asia-Pacific economies that around 40 per cent of earnings of major S&P 500 constituent companies come from emerging markets.

He took the stock market performance as indication that investors are not worried about how emerging markets will do. "If the emerging markets are going to be weak and not able to withstand taper, the S&P 500 shouldn't be at the levels that it is," he said.

Another cause for optimism is that incoming Fed chief Janet Yellen, who is due to replace incumbent Ben Bernanke next month, has clearly communicated that the gap between the taper and the normalisation of short-term interest rates is going to be farther apart than expected.

"So the crucial move on the Fed's funds rate may be in 2016 or 2017," said Maguire.

This means short-term interest rates will remain low for the immediate term, which may discourage excessive capital outflows from Asia back to the US.

Third, investors have already made tweaks to their portfolios in anticipation of the taper since news of possible tapering broke in May.

The re-positioning of their portfolios makes them better prepared to face the taper, he added.

Agreeing, Bhaskaran said: "I have a very positive view of the US economy."

He believed the Fed would implement a taper only if it is convinced that the US economy is strong enough to withstand it.

And growth in the US will in turn support growth in Asia because many Asian economies rely on the world's largest economy as a major export market, he added.


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