This time, Asian markets will be ready for Fed taper (The Straits Times)


Countries have made policy changes to avoid the volatility seen in 2013

ASIA is not likely to see a repeat of the “taper tantrum” market volatility of 2013 when the US Federal Reserve starts to raise interest rates because economies here are now better prepared.

Policymakers in the region, trying to head off any possible capital flight, have taken measures to improve the stability of their economies, including increasing taxes, reducing subsidies, freeing up markets and increasing currency reserves.

“There has been a lot of talk since 2013 and investors around the world have scaled down their positions since the so-called “taper tantrum” that occurred when the Fed announced plans to start reducing its asset purchase programme,” Mr Rajeev De Mello, head of Asian fixed income at Schroder Investment Management Singapore, said.

That programme was the massive stimulus known as quantitative easing that pumped hundreds of billions of dollars into the then ailing US economy.

Going by the tone of this week’s Federal Open Market Committee meeting, the first rate hike since 2006 may occur by the second half of this year. Citing transitory factors for weaker-than-expected first-quarter US economic growth, the Fed still sees US economic activity expanding “at a moderate pace.”

The market is now eyeing April’s US non-farm payroll data, due next Friday. US private employers added the smallest number of workers in more than a year in March, up just 245,000 after a 295,000 rise in February, missing market forecasts.

Remisier Alvin Yong said: “The question is whether the big miss in March was an anomaly, and if it isn’t, then that could indicate the economy is weaker than expected and the rate hike will likely be pushed back further.”

Meanwhile, several economists have downplayed the possibility of a “tightening tantrum” knocking Asia out.

Quantitative-easing programmes recently launched by the European Central Bank and the Bank of Japan should buffer the effects of US monetary policy normalisation, HSBC economist Frederic Neumann said.

Said Mr De Mello: “Countries that have been running trade surpluses, such as South Korea, as well as Thailand and Taiwan, would be quite well insulated.”

Mr Neumann said: “Korea and India appear far more robust than in 2013. India has sharply reduced its external financing needs, while Indonesia’s shortfall is still large. Thailand saw a sharp improvement, but Malaysia saw a drop in its surplus.”

Fitch Ratings also noted that India is not as vulnerable now to US rate rises as it was in 2013, while Indonesia remains somewhat vulnerable because it remains highly dependent on commodity exports.

“India still benefits as a large net commodity importer from the sharp fall in materials and oil prices since mid-2014,” Fitch said.

Meanwhile, Asian currencies gained in April by the most since September 2013 on speculation that the Fed will delay raising rates. The Malaysian ringgit rallied 4 per cent last month as crude prices rebounded. Singapore’s dollar strengthened 3.8 per cent, while Indonesia’s rupiah rose 0.9 per cent and South Korea’s won climbed 3.5 per cent.

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