Darren Sinden, Market Commentator for Admiral Markets, speaks on why the delay in the Federal Reserve Rate hike might see the emerging market and commodity related equities rally.
Sentiment shift positive for EM
Sinden notes that the change in sentiment, combined with the technical factors might be favourable for the emerging markets ahead. On the sentiment, Sinden believes that the market perception of central banks printing money as a solution to most problems isn’t actually true and the sentiment can turn ahead.
Fed a catalyst for EM correction?
Sinden highlights using charts that the downside in seen in the past 12 months is mostly as a result of the strong dollar and weakness in global commodity space, which negatively affected the values of FX and equities across developing economies.
He highlights the forward looking phenomena of the markets, which goes against the backward looking rule. He further adds how the weak Chinese data has held the Fed back from raising rates in September, this when combined with the slowing US fundamentals and the diminishing chance of a 2015 Fed rate hike, only raises concerns on what lies ahead for the USD.
Summarizing his thoughts, Sinden says that the fading rate hike outlook will lead the fund managers and traders to close their long dollar and short EM equities/FX trades, and liquidity issues would spell a entire different story into EM equities and currencies. He also highlights the risk of a bounce back in commodity prices as dollar weakens, which would again be supportive for the EM equity story.
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