Passersby wearing protective masks following the outbreak of the coronavirus disease (COVID-19) are reflected on a screen showing stock prices outside a brokerage firm in Tokyo, Japan, March 17, 2020. 2020.
Issei Kato | Reuters
According to Carlos Casanova, Asia senior economist at Swiss private bank UBP, Asian countries will face three major headwinds next year.
He told CNBC’s “Squawk Box Asia,” he said: “We have cases of increased omicrons. We have valued slower growth in China at around 5%.” on Friday, adding that those This factor “poses a threat to the entire region.”
Central Bank of the United States of America Investors are terrified last week after a few minutes of it December meeting members are signaled ready Tighter monetary policy than previously expected.
The Federal Reserve said it may be ready to start raising rates, dial back its bond-buying program and engage in high-profile discussions about reducing holdings of Treasuries and mortgage-backed securities .
While Asia’s emerging markets are well positioned, they will be more affected by these factors – especially if the Fed takes a positive move on the policy front, Casanova pointed out.
“There will be real exchange rate compression between emerging markets in Asia and the US,” he said. This could lead to bond outflows in the region, especially from more vulnerable economies, he added.
In 2013, the Fed activated the so-called “insect“when it started shutting down its asset purchases. Investors panicked and it caused a sell-off in bonds, sending Treasury yields skyrocketing.
As a result, emerging markets in Asia suffered from strong capital outflows and a sharp currency devaluation, forcing central banks in the region to raise interest rates to protect their capital accounts.
It all depends on how the Fed proceeds to normalize its policy in the coming months, Casanova said.
“What we are struggling to avoid is a situation whereby they are more proactive in reducing their balance sheet at the same time as they are doing three rate hikes in 2022,” he said. note and say that is likely to translate to further flows from the region and deflationary pressures.
