The market was prepared “for Summers to come in as the new chairman, and a lot of those positions are now unwinding,” according to Pang Cheng Duan, head of fixed income at Manulife Asset Management (Singapore) Pte, whose parent company manages $247 billion globally.
The Fed’s Federal Open Market Committee will hold a two-day meeting that will start tomorrow to review monetary policy.
Gradual Tapering
With market expectations adjusting to less-aggressive reduction in the Fed’s stimulus, it should lower the immediate risk of capital outflows from Asia, according to a research note written by Rob Subbaraman, a Singapore-based economist at Nomura Holdings Inc. It will provide “significant relief” for nations with current-account deficits such as India and Indonesia and to a lesser extent Malaysia and Thailand, he wrote.
“Today, it is mainly the current-account deficit countries that benefit from the Summers news,” Maarten-Jan Bakkum, a senior emerging-market strategist at ING Investment Management in The Hague, said by e-mail. ING Investment Management oversees about $13.4 billion in emerging markets.
India’s S&P BSE Sensex gained 0.1 percent, its first advance in three days, while the benchmark stock index in Turkey, which posted a larger-than-estimated current account deficit in July, surged 3 percent, set for the highest close in a month.
The JPMorgan Emerging Markets Currency Index was 5.4 percent lower at the end of last week than on May 22 and a JPMorgan Emerging Markets Bond Index dropped 8.5 percent for the period. The gauges rallied at least 1.2 percent each last week.
“The tapering would probably be at a gradual pace,” Wee- Ming Ting, the Singapore-based head of Asian fixed income at Pictet Asset Management, which oversees $24.3 billion in emerging-market bonds globally, said by phone. “People are worried about Summers’s hawkish stance. With his withdrawal, the market is expecting a higher probability that Yellen will be the next Fed chairman.”