Here’s How Asia Investors are Reacting to the Emergency Fed Cut

(Bloomberg) -- A central bank misfire, a temporary stabilizer, an opportunity for bargain hunting. These are some of the disparate views in Asian markets Wednesday, after investors awoke to the first emergency Federal Reserve rate cut since the financial crisis.

One unifying theme seemed to be that the Fed move was only the beginning, with further action now expected as policy makers across the world react to the economic impact of the spreading coronavirus.

Here are a selection of comments from strategists and investors:

Fed Misfire

Kerry Craig, Melbourne-based global market strategist at JPMorgan Asset Management

“The U.S. Federal Reserve’s attempt to surprise the market may have misfired. The sharpness of their reaction and the off-schedule timing of the move could be interpreted as the Fed being much more concerned about the economic impact than first thought.”

Investors should watch currencies as a declining dollar is “not what many Asian markets need,” Craig said, citing that lower rates and safe haven buying of Treasuries could weigh on Asian currencies and counter the easing underway in other economies.

Raising Cash

He Qi, fund manager with Huatai-PineBridge Fund Management Co.

“I’ll sell a bit of my Hong Kong stock holdings today, especially those with high valuations such as shares in the electronics sector, as the market is chaotic now.”

“It’s hard to say what will happen next so I plan to raise cash levels for now amid great uncertainty. It’s abnormal that the Fed cuts rates by such a large amount, and that means you have nothing to look forward to as all bullets have been used. But the Fed’s rate cut is not going to help the virus issue.”

Stay Defensive

Alan Ruskin, strategist at Deutsche Bank AG

“More likely the Fed jumped in today because they understood the seriousness of the situation, and that the limits to policy efficacy would be even more exposed, if they were not pre-emptive.”

“It then looks far too early to be taking profits on short-term rate receivers, long duration sovereign bonds, or short risky assets including EM FX.”

More Stimulus

Anna Stupnytska, head of global macro at Fidelity International

“Clearly, last week’s sharp market sell-off in light of coronavirus-related anxiety and the resulting tightening in financial conditions have forced the Fed to take a pre-emptive action to reassure the market -- this is a strong signal from the policymakers.”

“Following moves from the Reserve Bank of Australia and Fed this week, it is now likely that other major central banks will follow suit in a coordinated fashion.”

Economic Disruption

Andrew Mulliner, global bond portfolio manager at Janus Henderson Investors

“The reality is a supply shock is now potentially being met with a demand shock should more dramatic measures be required to contain the spread of the virus.”

“In such a scenario, cutting rates certainly won’t hurt, but it certainly won’t be enough to avoid major economic disruption.”

Time for Fiscal

Michael McCarthy, chief market strategist at CMC Markets

“There is now a question over the ability of monetary policy to halt plummeting asset prices.”

“The dangers of negative wealth effects from stock market falls adds to concern about the global outlook. The seeming ineffectiveness of further monetary easing will almost certainly lead to further calls on governments to push the fiscal stimulus button.”

Patience Required

Andrew Sheets, chief cross-asset strategist at Morgan Stanley

“We urge patience -- what’s troubling markets is not easy for lower rates to fix, and the history of ‘emergency’ cuts is mixed, to say the least.”

“European investment grade indexes are more likely to see increased central bank support than their U.S. counterparts.”

Temporary Stabilizer

Christopher Wong, senior foreign exchange strategist at Malayan Banking Bhd.

“The concerted and synchronous action is like a temporary stabilizer, not a cure.”

“The market may run out of patience if it takes longer for the coronavirus to go away. The spillover effect on equity, risk sentiment and macro data will mean that U.S dollar decline will pause at some stage.”

Korean Bulls

Min Gyeong-won, an economist at Woori Bank in Seoul

“Investors in emerging Asia seem to be approaching the Fed cut as an emerging-market buy-on-dip opportunity.”

“A Fed cut is a positive driver for local stocks. Foreign investors are now net purchasing South Korean stocks for the first time in more than a week.”

Volatility to Stay

Liu Zhenghua, general manager at Ningbo Zhiyuan Investment Management Co.

“Huge swings in the stock market are unavoidable in the near term, given the virus outbreak is still spreading, so the Fed’s rate cut is unlikely to ease the huge volatility in the short term.”

“I would keep my positions largely unchanged and play a wait-and-see strategy.”

Bargain Hunting

Ma Cheng, chairman at Shenzhen Juze Investment Management Co.

The Fed’s rate cut is bound to trigger a new round of global easing, “it will be a good news for capital markets.”

“I believe the valuation of the A-share market is still in a relatively low level in general and I also expect more foreign inflows into the domestic stock market, so we plan to do bargain hunting if stocks in our wish list fall to the buy zone.”

--With assistance from Adam Haigh, Cindy Wang, Joanna Ossinger, Chester Yung, Ken Wang and Hooyeon Kim.

To contact the reporters on this story: Moxy Ying in Hong Kong at yying13@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Cormac Mullen

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