23 October 2016
Investors should not be complacent about the impending US rate hike, say Will Shum (L) and Eddy Wong of Photo: EJ Insight
Investors should not be complacent about the impending US rate hike, say Will Shum (L) and Eddy Wong of Photo: EJ Insight

Get ready for US rate hike and yield rebound: portfolio manager

Investors should be more alert and prepare themselves for a possible US rate hike this year, an online fund distributor said, warning that unpreparedness could bring adverse consequences.

Some market participants may be of the view that the Federal Reserve will hold off on policy tightening following the disappointing US first-quarter GDP data, but such thinking may be off the mark, said Will Shum, a portfolio manager at (FSM).

“We think that this conclusion is a bit arbitrary,” Shum said, as he pointed out that the first-quarter growth was dragged by severe winter weather and heavy snowfall.

The harsh weather dragged the GDP by 1.25 percentage points, leading to an annualized growth rate of just 0.2 percent for the three months to March, he said.

The GDP figure is not that bad if we rule out the climate factor, Shum said, adding that growth is expected to bounce back significantly in the second quarter.

“The market is very unprepared for the rate hike… the US and German bond yields are at historical lows. In an ultra-low yield environment, a small yield rebound can result in a large impact,” he said.

A rate hike would most likely result in capital outflows from emerging markets, and local bonds denominated in the local currencies of the emerging markets may also suffer because of a stronger US dollar.

FSM is an online sales platform for funds. It currently provides a marketing channel for 480 funds from 50 fund houses.

The company is a subsidiary of iFAST Corporation, the largest local online mutual fund distributor in Singapore, with S$5.75 billion of assets under management.

In other comments, Eddy Wong, general manager of FSM, said cross-border mutual fund recognition is set to draw the interest of Hong Kong and overseas investors as there are a lot of thematic funds in the mainland.

“The A share market… will see some sectors perform stronger,” Wong said, adding that “funds that focus on some individual sectors will draw the most investor interest”.

The mutual fund recognition scheme is mainly aimed at helping mainland investors diversify their portfolios, rather than to attract overseas funds into the country, he said.

The scheme overall “aims to educate mainland investors to allocate their assets more properly and not to put all their investments in the A share market,” Wong said.

With an initial quota of 300 billion yuan for each side, about 100 Hong Kong-domiciled funds and 850 mainland funds are eligible in the scheme that is to be launched on July 1.

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EJ Insight reporter

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