Fixed Income  

Tapering impact on emerging markets ‘overstated’

Franklin Templeton’s Michael Hasenstab has said the fear that US tapering of its quantitative easing programme would disproportionately hit emerging markets is overdone.

Mr Hasenstab, who runs the group’s giant $49.2bn (£32.2bn) Templeton Global Bond fund, said the Federal Reserve’s intentions to scale down and withdraw quantitative easing (QE) would be driven by better economic fundamentals which would be beneficial for the rest of the world.

“I think this fear of liquidity being pulled out of emerging markets due to the Fed ending its bond purchasing programme is overstated as we do not believe there would be a massive contraction of liquidity out of emerging markets,” he said.

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“Our view is that this is likely to be more of an entry point for investors as opposed to an exit.”

Mr Hasenstab added that because interest rates were likely to stay lower for longer even if quantitative easing was reduced it would mean the US’s overall monetary policy would still be loose.

He also said other markets were still “flooding the market with liquidity”, including Japan, which has begun a programme of QE which will see it pump roughly $1trn into financial markets - a similar amount to that put in by the Fed.

Mr Hasenstab said: “As the US begins to taper, Japan is beginning to ramp up. In our view, it doesn’t really matter whether the Fed prints or Japan prints or Europe prints. If it’s printed, it’s going to flow out.”