Low Interest Rate Countries Vulnerable To External Shocks

KUALA LUMPUR, Dec 5 (Bernama) -- Countries with low interest rates or large structural imbalances with economic soft spots, are expected to be vulnerable to external rate shocks in the post quantitative easing (QE) era created by the United States Federal Reserve (US Fed), according to global fixed income investment pioneer, Templeton Global Macro. However, countries with stronger economies, balanced current accounts and relatively higher yields should be in a stronger position to absorb the US Fed's interest rate shifts of 100 basis points, or higher, said Executive Vice-President and Chief Investment Officer Michael Hasenstab. In a 2019 Global Investment Outlook report released Tuesday, he revealed that local-currency emerging markets showed the highest level of undervaluation across the global fixed income markets, a decade after the global financial crisis peaked in 2008. "Several countries have diversified their economies, significantly broadened their local-currency debt markets, expanded their domestic investor bases and built up resilience to external shocks while others continue to have persistent structural imbalances, unreliable institutions and fragile economies," he said. Moving forward, he opined that in 2019, it would be increasingly important to identify countries that offer idiosyncratic value that was less correlated to broad-based beta (market) risks, as rising interest rates in the United States should impact individual countries in starkly different ways. -- BERNAMA