Emerging markets relieved following Fed decision

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“This is all very helpful to us and I think that’s pretty true across the emerging market world. It was hard to lower interest rates – the rand had weakened because interest rates in the US had risen so money flowed away from emerging markets, putting pressure on inflation and therefore on interest rates,” Brian Kantor, economist and strategist at Investec Private Client Securities, told CNBC Africa.

“That pressure is now reversed so we see money coming back into emerging markets. We want lower interest rates and this may help to deliver them. So if we saw more rand strength, more interest in emerging markets, we could see interest rates coming off. At worst we will stop interest rates from rising any time soon.”

The Federal Reserve unexpectedly refrained from reducing the 85 billion dollar pace of monthly bond buying, saying it needs more evidence of lasting improvement in the economy. It also warned that an increase in interest rates threatened to curb the expansion.

“It was data-dependant and the data wasn’t quite good enough for Ben Benanke to want to give up on his attempts to stimulate growth. He’s not threatened by inflation so why not more. What worried him apparently was the moving long-term interest rates,” Kantor explained.

“The Fed basically lived up to its word. It said it’s going to be based on data and the data very recently has been worse than expected, therefore it makes sense that they would have held off for now. I think the market got too caught up in the idea that it was going to occur,” added Viv Govender, senior analyst at Vunani Private Clients.  

Gary Booysen, a trader at Vunani Private Clients expected a euphoric rally in the South African market following the news. 

“You’re going to see a lot of buying. They’re already talking about quite a dramatic short squeeze in the Turkish markets. I think things are going to settle down, a little bit of volatility but a lot of investors, I think, are going to reposition today,” he said.

“I think 90 per cent of analysts were expecting a taper. You can see that it shocked markets because we’re seeing dramatic gains across the board in all Asian markets and on the Dow.”

Govender also expected the market to perform stronger on the back of the negative sentiment over tapering.