The US markets got a crippling blow due to the US economic data, which suggested increasing labour costs and rising fears of interest rates going up once again. This was enough to dent emerging markets and Asian markets on Thursday morning.
Shane Oliver, Head-Investment Strategy at AMP Capital Investors, gives his views on how emerging markets are dealing with the data which came in.
Oliver believes that higher US labour cost has fuelled rate hike fears again. According to him, the Fed may have finished with its rate hike cycle.
Oliver attributes lower crude oil prices as a support to markets. He feels that the concerns of US slowdown will remain for the short-term. Oliver further adds that on a 12-month perspective, emerging markets will outperform.
Excerpts of CNBC-TV18's exclusive interview with Shane Oliver:
Sum up the mood this morning for the global, Asian and other emerging markets?
We had a pretty good recovery in most markets from their lows back in June. I guess part of that was driven by the view that the Fed was through with raising interest rates.
But the overnight US labour cost data has called for questions and we are seeing a bit of a correction unfolding. My feeling now is that the Fed is through with raising rates and the next big move is down. But obviously, there will be bumps along the way and we are seeing one right now.
Which are the markets that you would be looking at? Do you think that crude cooling off has actually sort of helped stem the fall
I think it is certainly the case that lower crude oil price is acting as a support for markets.
Likewise, if one looks at the trend in bond yields around the world over the last couple of months, it has been down and that also acts as another support.
I think there might be concerns over the next month or so that maybe the US economy is slowing down too much and that could act as a negative for the equity markets.
But in the broader context, the US economy is slowing, the heat is coming out and that would eventually lead to moderation in wages growth. I think the wages data that came out of the US overnight dramatically exaggerates underlying wage pressures.
If one looks at the Employment Cost Index, it is essentially quite benign in America. Obviously, we have got a few short-term jitters but I think the broad picture is still reasonably bright and we might have few bumps over the next month, but the trend will be up.
Broadly at this stage of the cycle, one would probably have a bit of bias towards the safer share markets. In fact, US is probably a safer share market because as interest rates peak in the US, it will help the US share markets; and investors will still be a bit cautious. But if one looks beyond the uncertainty in the short-term and taking a 12-month view, I think emerging markets will start to come back into the run and will start to outperform.
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