Why investors can still benefit despite Fed's uncertain aura

Dubai - The CEO of one of the world's largest independent financial advisory organisations said that while a rate raise hasn't happened this time, it is on its way.

The US Federal Reserve is fuelling uncertainty in international markets by holding its interest rate at record-low levels and investors will adopt a watch-and-see policy in the short term, experts say.
Nigel Green, founder and chief executive officer of deVere Group, said the Fed - the world's de facto central bank - itself is fuelling uncertainty in global markets, but this rate-related uncertainty will also present important buying opportunities for investors.
"With half the investment community believing the Fed would this month raise rates, and half not, whatever the final outcome was, there is bound to be volatility - and this should be expected until the end of the year," Green said.
The CEO of one of the world's largest independent financial advisory organisations said that while a rate raise hasn't happened this time, it is on its way.
"It will happen eventually and probably as Janet Yellen, the Fed's chair, hinted before the end of the year. The countdown clock has simply been reset. Of course, this is a trigger for short-term volatility," he said.
The Fed kept its interest rate unchanged at 0.25 per cent on Thursday amid concerns over a weak world economy. Citing recent global economic and financial developments, it delayed the key monetary policy decision later this year.   
 
Dovish tone
Angus Campbell, senior analyst at London-based FxPro Financial Services, said the markets were on tenterhooks in the run-up to September's Federal Open Market Committee (FOMC) meeting, where a large proportion of investors were bracing themselves for the first rate hike by the Fed since 2006 and even the first change in interest rates since 2008. 
"In the end it resulted in somewhat of an anti-climax as no action was taken and the Press conference that followed had a considerably dovish tone to it, whilst at the same time giving inconsistent messages that left various doors open that could lead to the commencement of monetary tightening as soon as October," Campbell told Khaleej Times.
To a question about the Fed move's impact on equity and currency markets in the short term, he said uncertainty in international financial markets will continue and keep investors guessing until the next FOMC meeting in October.
"Naturally, the Press conference after the Fed meeting caused the dollar to sell off, but also stocks declined as equity investors vented a degree of disappointment that one of the great uncertainties in the financial markets at the moment has not been eliminated. That uncertainty will continue for as long as the Fed keeps investors second guessing when they will move."
He said the dollar weakness has allowed emerging market currencies to recover some of the heavy losses they've experienced in recent weeks, in particular the Indian rupee, which is back at its highest level against the dollar for three weeks. 
"This dollar weakness has the potential to continue especially if the incoming US economic data softens in line with a slowing Chinese economy so we could see the dollar-rupee parity moves back below the 65 level. However, the move could be temporary as we head towards the end of the year and the dollar could reassert its strength," Campbell said.
 
Nervous about China
Green said the US economy is no longer in the emergency room, so by not raising interest rates, the Fed is, in effect, sending out a clear message that it is nervous about China, and the impact a potential hard landing could have on US and global growth.
This concern over global developments is bound to prompt uncertainty too.
"It is critical to remain aware of the volatility and its causes, to have a fully diversified portfolio across asset classes, geographical regions and industrial sectors to manage risk, and perhaps to begin to consider the effect of a possible market correction on portfolios." 
He said there is a significant amount of potential upside too. Equity valuations do appear to be fundamentally sound, so any China or US rate-related volatility is perhaps worth taking advantage of where possible. "Those with a good fund manager are likely to be able to capitalise on the important buying opportunities that this bout of volatility will undoubtedly present," Green said.
- muzaffarrizvi@khaleejtimes.com
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