Sudden Fed hikes seen leading to volatile market

THE US Federal Reserve’s interest rate hike could result in volatility across the globe, an analyst said, adding that the market is already pricing in a series of rate increases until the end of the year.

“It remains to be seen, but my initial impression is that this could have a knee-jerk negative reaction on our risk assets, stocks, and also bonds as the Fed will show that they are committed to have a more frequent rate hike path,” SB Equities, Inc. Research Head Angelo B. Taningco said in a BusinessWorld Insights webinar on Wednesday.

He said the market is pricing in seven rate hikes, one for each of the Federal Open Market Committee meetings until yearend. The market is also pricing in a 50-basis point hike in March.

In the US market, the eventual Fed interest hike has already been priced in, Mr. Taningco said.

However, he said “there’s still potential volatility in the sense that the market is still blind when it comes to the other side of monetary tightening, which is the balance sheet reduction.”

“As we know, the Fed has expanded its balance sheet close to $9 trillion already with purchases of government securities and that has to be reversed in order to also contain inflation so we do not know yet to what extent, how much the balance sheet reduction will be,” Mr. Taningco said.

“If it surprises the market, then we’ll have another bout of volatility, which could reverberate across emerging markets as well,” he added.

Meanwhile, Investagrams Chief Marketing Officer and Co-Founder John Michael Lapiña said more foreign funds should come into developing countries, including the Philippines, Vietnam, and Thailand.

He said the country could also attract more foreign investments if it is more lax with foreign investors. He said there is also “a need to list more companies in the market” as the country is behind in terms of the number of listed firms.

“For the country to really grow the exchange, to really grow the market, we need to put in more volume coming from foreign institutions… we need to make it more attractive to them, for us to have a really stable growth,” Mr. Lapiña said. — Keren Concepcion G. Valmonte