Federal Reserve Chair Jerome Powell took a sharp and unexpected turn on Tuesday toward tightening credit for consumers and businesses in the face of mounting concerns about high inflation. Powell said the central bank will consider halting its bond purchases meant to lower long-term interest rates sooner than expected.

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CNBC-TV18 spoke to Jim McCafferty, Global Markets Research at Nomura, to understand what it means for emerging markets (EMs).

McCafferty said, “It depends on how dependent these countries are on a couple of factors – one is the supply of debt and the exchange rate. Many of these countries require strong US dollar in order to get their exports into those particular markets and weaker local currencies.”

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The other thing to be mindful of is inflation, he said.

“Why is the Fed thinking of increasing rates? Inflation in the US and many western geographies is getting to levels which are uncomfortable for policymakers. Here in Asia, inflation does not seem to be as much of an issue. So we may see some bifurcation in terms of how countries in this part of the world adjust their policies related to those in the west,” he added.

From the data, it does appear that inflation is much more contained in Asia than elsewhere.

In terms of the equity market, he said, “Valuations being so low in this part of the world that we may see 2022 be a better year for Asian equities vis-à-vis those in the west.”

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In the past the global markets were very much interconnected, that is still the case with countries like Japan and Korea where tech is a big part of their stock market index but countries like China – increasingly detached, he noted.

“Countries are looking after themselves as a priority. So we are seeing a bit more detachment from other markets especially in the case of China but also in the cases of other markets around the region that is Japan and Korea. Governments have started taking problems in their own hands,” he said.

For the full interview, watch the accompanying video.

Catch all market updates here.

(Edited by : Dipikka Ghosh)

First Published:Dec 1, 2021 9:47 AM IST