Baring’s Khiem Do Expects Market Shocks from Rate Hikes

Khiem-Do

Investment Director & Head of Asian Multi-Asset , Baring Asset Management

By Emily Lai

After weeks of volatility, the investment market finally mellowed out with positive news coming from different markets. The Greece bailout agreement, China’s market rebound after government intervention in A-shares and better than expected corporate earnings in US all boost investment sentiments. Khiem Do, Head of Asian Multi-asset at Baring Asset Management tells BENCHMARK that despite the market has quietening down a bit, there are still concerns we must bear in mind.

“The Greece agreement is of course a positive factor in the short term,” he says. “But it could be only a short term resolution.” Worry lies in where Greek Prime Minister Alexis Tsipras made it clear that this is “a choice of a deal I did not agree with”. Do remains hesitant of how long Tsipras will stay in office and how the reforms in the bailout agreement will be carried out. “We will definitely be hearing more of these in the coming time.”

For A-shares, Do expects that the number of suspended stocks will reduce in the coming week and hopefully attain 100% trading again in two weeks’ time. The market tumble has triggered bargain hunting, especially in the H-share market, mainly due to the low valuation that cushions out the effect of A-share volatility, but it would take some time for the goodwill to rebuild and boost up foreign investors’ confidence again.

The US market has been on the bright side with the Nasdaq reaching a record high in the past week. Corporate earnings are “so far so good” according to Do, with Netflix, EBay, Citigroup and Google all beating analysts’ expectations. Do believes corporate earnings for the whole year will still beat estimates because US companies are very good at handling anticipation, but the growth would only be around mid-single digits. The undercurrent comes with the rate hike from the Fed.

“We still expect it to be in September, but the market has not priced it in and that will create a little surprise. The equities market would be quick to pick up again after the shock, but not for the bond market; and US dollars would have the advantage”, said Do. BM