Goldman Says Four Fed Hikes Little Problem for Asian Equities

(Bloomberg) -- Investors should look through the worries about a faster pace of U.S. monetary tightening that have shaken Asian stocks so far this week, according to Goldman Sachs Group Inc.

Stocks in the world’s fastest-growing region should be able to cope with four interest-rate hikes, the bank’s strategists said after remarks by Federal Reserve Chairman Jerome Powell Tuesday sent Asia’s benchmark MSCI AC Asia Pacific Index tumbling. The drop was part of a global sell-off prompted by Powell’s indication that the Federal Open Market Committee could pick up the pace from the three rate increases previously projected for 2018.

A look at Asian equity performance during Fed hiking cycles shows a varied picture, “but broadly suggests that markets can absorb a more persistent FOMC, particularly since the absolute level of policy rates is still low,” analysts led by Timothy Moe said in a research report published on Wednesday.

Investors aren’t quite on board with that yet. The MSCI Asia Pacific Index has lost 1.7 percent since Powell spoke at a congressional hearing Tuesday. Japan’s Topix index dropped 2.8 percent in the same period. Powell appears at Congress again Thursday.

Moe and his team have one caveat.

“This assumes that the growth outlook remains robust and that policy increases are clearly signaled,” they said in the report. “If the Fed hikes more aggressively than inflation pressures suggest (increasing real rates more sharply) or surprises the market by failing to manage expectations, regional equities are likely to react more negatively.”

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