U.S. Market Jolt Warns of Bumpy Ride for Asia: StanChart's Mann

(Bloomberg) -- The sharp sell-off in U.S. stocks on Friday is a lesson for Asia to get used to a more volatile environment as central banks continue to erode a years-long rally in equities, said David Mann, chief Asia economist at Standard Chartered Plc.

U.S. markets took a dive after the Labor Department released January jobs figures showing a boost to wages, prompting speculation the Federal Reserve may need to raise interest rates by more than markets had been expecting. In Asia, where developing economies are readying to tighten monetary policy, the slump could be a cautionary sign of more rocky times ahead.

“The biggest issue for everyone in Asia is whether or not last week’s rise to the upper end of the range for wage growth in the U.S. is something that will persist and will go even way beyond that range,” said Mann. “And if so, expected inflation should be following,” which could mean a lot more pain for markets in this region, he said.

U.S. equities started the year on a tear, with the Standard & Poor’s 500 Index surging 5.6 percent in January from the end of last year. The performance was perhaps an “over-exuberant” one and a reminder that January returns haven’t always been a good indicator of what the full year will show for markets, said Mann.

To be sure, Standard Chartered isn’t penciling in huge wage gains for Americans to follow the January figures, but the acceleration in pay will still have ripple effects across the world as U.S. yields continue their climb from a four-year high.

Fed Catch-Up

Central banks globally are playing a game of catch-up with the Fed as policy makers remove stimulus and boost interest rates, erasing the support that equities have enjoyed since the financial crisis. Malaysia’s start to Asia’s regional tightening cycle in 2018 precedes a normalization in several economies in Asia, including South Korea and New Zealand, said Mann.

“Central banks’ support for markets is going to go down this year,” he said.

While market participants should be aware of these risks, the swift move in U.S. equities on Friday provided more of a jolt than it otherwise would have, as everyone has grown used to a low-volatility environment, said Mann.

“Investors will just have to be holding their nerve more so than in previous years,” said Mann. “Get used to the volatility that’s coming.”

To contact the reporter on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke

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