Tags: Nomura | Asia | Emerging | Markets

Nomura: Worst Is Over for Asia's Emerging Markets

Monday, 02 September 2013 05:51 PM

The worst may be over for Asian emerging markets, according to Nomura Holdings Inc., after investors pulled billions of dollars last month on concern the U.S. Federal Reserve will start cutting back bond purchases.

“We’re through the worst of the crisis but it doesn’t mean individual countries won’t continue to suffer significant challenges,” Steve Ashley, London-based head of global markets at Nomura, said in an interview. “We remain relatively positive on the longer term performance of risk assets in Asian emerging markets.”

The outlook for Asian emerging markets remains “very positive” over the next 5 to 10 years as the amount of investments by funds in these countries will likely have to catch up with the growing size of their economies, he said in Singapore on Friday.

A gauge of Chinese manufacturing index rose to its highest level in 16 months in August as new orders jumped, adding to evidence that growth in the world’s second-largest economy is strengthening after a two-quarter slowdown, according to a government report over the weekend. The Philippine economy expanded above 7 percent for a fourth straight quarter in the three months to June, a separate report showed.

The positive outlook for Asian emerging markets provides an opportunity for Nomura outside Japan, a key market, Ashley said. The number of Nomura clients in Asia ex-Japan for the global markets division doubled in the past three years, he said.

Integrated Trading

Since taking on his role in December last year, Ashley, 46, has pushed to integrate the bank’s 1,800 sales and trading staff from equity and fixed income. There are now trading floors handling multiple asset classes in London, New York and Singapore, he said, with the one in Hong Kong to be set up by the end of the year.

“The closer collaboration between fixed income and equities is actually indicative of closer collaboration with all of the other Nomura divisions -- retail, asset management, wealth management,” he said.

The expansion also came as the MSCI Asia-Pacific Excluding Japan Index dropped as much as 14 percent after Federal Reserve Ben S. Bernanke said on May 22 the central bank may start tapering $85 billion in monthly U.S. bond purchases if the world’s biggest economy improves. About $44 billion has been pulled from emerging-market stock and bond funds globally since the end of May, data provider EPFR Global said on Aug. 23.

Stimulus Addiction

“The markets have been addicted to the methadone of quantitative easing and needs to wean itself off,” Ashley said. “That’s why we’ve seen some turbulence in the markets.”

The markets have been “addicted to the methodone of quantitative easing,” Ashley said. “It needs to wean itself off, and that’s why we see some turbulence in the markets. For the longer-term health of financial markets, it’s important that normalization takes place.”

The Fed has kept its target for overnight lending between banks in a range of zero to 0.25 percent since December 2008. Investors see a 59 percent chance policy makers will raise the so-called federal funds rate to 0.5 percent or more by January 2015, data compiled by Bloomberg from futures show. Yields on 10-year U.S. government bonds surged for a fourth month, touching its highest since July 2011.

“The market shouldn’t be frightened of normalization,” Ashley said. Historically, “the first half of the tightening cycle is normally accompanied with reasonable economic growth and reasonable performance by risk assets. It’s only towards the end of the tightening cycle that you see a tail-off in risk asset performance.”

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The worst may be over for Asian emerging markets, according to Nomura Holdings Inc., after investors pulled billions of dollars last month on concern the U.S. Federal Reserve will start cutting back bond purchases.
Monday, 02 September 2013 05:51 PM
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