The prospect of a US rate hike and a stronger dollar could result in fund outflows from Asia in the near term, Young said, in an interview with Fund Selector Asia.
“While higher US interest rates will likely damage short-term sentiment and money will flow out of Asian emerging markets, the long-term investment rationale remains intact.”
A potential positive is that Asian exporters could benefit.
“The normalisation of the US Federal Reserve policy is based on the assumption of a sustainable US economic recovery. This is set to benefit Asian exporters and may help offset some of the effects of a slowdown in China.”
He added that Asian stocks still look cheap on both a relative and an absolute basis.
According to Young, Asian stocks looks cheap. The price of equities on average is 1.6 times the book value, which is lower than the long-term average of 1.8. Furthermore, Asian stocks are lower priced compared to developed market equities.
The fall in global crude oil prices also is helping some oil-importing countries like India and Indonesia reduce their domestic inflation and current account deficits.
Asian currencies-fundamentally sound
The current weakness in Asian currencies is related to the dollar’s strength, not because of fundamental problems in the countries, Young said.
“Asian economies are in better shape today because they [countries like India and Indonesia] started reducing current account deficits after the ‘taper tantrum’ back in 2013.”
