US rate rise may benefit emerging markets: expert

Thailand had about US$158 billion (Bt5.7 trillion) in international reserves, with a flexible exchange rate and a current-account surplus of $5.2 billion as of October.

Public debt stands at 43 per cent of gross domestic product, which is expected to expand by 3.8 per cent in 2016, as revealed by the Finance Ministry this week.

"The markets have overreacted. They have already priced it [the US rate increase] in and these countries will still have a growth advantage, an interest-rate advantage, and as a result, it will reverse some of the fallout," said Hasenstab, chief investment officer for Templeton Global Macro at Franklin Templeton.

He spoke at Bloomberg’s "Asean Business Summit 2015" in Bangkok yesterday.

"The [US] rate hike is actually what is necessary to finally get this uncertainty out of the emerging markets and move forward," he said.

Hasenstab said the economic situations in Malaysia and Indonesia were not too bad, as Malaysia still had a current-account surplus while the Indonesian economy was still growing from investments in infrastructure.

He said Turkey, South Africa and oil-export-dependent Russia and Venezuela were more venerable to the inevitable rise of US yields and the distortion in global capital flows that would follow a rate increase by the US Federal Reserve.

Even though Franklin Templeton believes that there will be a soft landing in China’s economic growth, with a market consensus of 7 per cent expansion next year, the prospect of a hard landing is one of the biggest risks for Asia’s money and investment markets, he said.

"If China does have a hard landing, that will be a tidal wave throughout the region, so we have to watch out for that very closely," he said.

Hasenstab said issues such as global uncertainty and the US Fed’s September statement on the risks associated with the Chinese economy had spooked investors, resulting in them dropping emerging-markets equities.

But once the US signalled that its economy had recovered enough for rate normalisation, capital could return to emerging markets as quickly as it left.

He said Asean’s shift towards the new development model in China would be important for the region.

There is a lot of economic potential linked to China in relation to shifts in such areas as tourism, financial services, food and palm oil, as they are big parts of China’s economy.

But he said there were also going to be losers, while the increase in trade freedom stemming from this month’s full implementation of the Asean Economic Community would support the region’s development to be in line with China’s new model.