The firm’s forecast is in line with others such as the Bank of Singapore, which said the rate hike is likely in June due to the strengthening of US employment figures and inflation expectations. Earlier this year, when markets were tanking, some analysts predicted that the US would have no rate hikes this year or even reverse the December increase of 25 basis points. The US Fed said it expected to raise rates four times in 2016, and Schroders’ forecast reflects a slower pace. But Taljard was concerned about further strengthening of the US dollar, which tends to happens as rates rise. A stronger dollar is viewed as the biggest investment risk over the next 6-12 months.
“If you get a very strong US dollar, then that could cause big problems as it might cause commodity prices to fall further,” he said. “Countries that have borrowed in dollars but are earning in local currencies might struggle to pay back their debts.”
He also believes a stronger US dollar could ignite currency wars, particularly in regards to the RMB and the Japanese yen.
Equity tilt
Taljard is favourable toward equity markets in general, and specifically the US markets.
“The US is not particularly cheap, but we are seeing the economy continue to track along, job creation continues quite well, and we also find the US a bit more stable market. It is not cyclical and volatile as in Europe and emerging markets…
[Source: Fund Selector Asia – Author: Susanna Tai – March 9, 2016]
