The financial market is holding its breath for the upcoming interest rate decision by the Federal Reserve, with global capital on the move to seek new growth points, and the outlook for the Asia-Pacific market may become multi-tiered.
Some analysts believe that if the Federal Reserve cuts interest rates, it will trigger a rise in the Japanese yen, which could cause concern for investors in emerging markets, as the collective sell-off on "Black Monday" in August is still fresh in memory.
Last month, the unwinding of yen carry trades caused by Japan's interest rate hike dominated market sentiment, leading to the Nikkei 225 index suffering its worst plunge since 1987, coupled with a significant drop in the number of non-farm jobs in the United States and a sharp decline in U.S. tech stocks.
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Analysts point out that this time may have a similar effect.
As the Federal Reserve is about to enter its first interest rate cutting cycle in years, the market remains divided on whether it will cut by 25 basis points or 50 basis points: on one hand, a 50 basis point cut might raise doubts about the health of the U.S. economy, leading to a sell-off of emerging Asian assets.
This could also strengthen the yen, prompting investors to unwind risky asset carry positions financed in yen.
On the other hand, a 25 basis point cut might be beneficial for the stock market, with Southeast Asian markets being the main beneficiaries.
The movement of the yen is also closely related to expectations of a rate cut by the Federal Reserve.
On Monday, as expectations for a "50 basis point cut" rose, the yen's exchange rate against the U.S. dollar broke through the 140 mark, reaching its highest level this year.
As of now, the yen is at 141.79 against the dollar, with the increase narrowing.
Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that as of September 10th, asset management companies' bullish sentiment on the yen has risen to its highest level since March 2021.
Analysts point out that this also causes panic among Japanese investors; if the Federal Reserve chooses a more substantial rate cut, the yen could strengthen further, putting pressure on Japanese companies that rely on exports.
Unlike Japan, Southeast Asian markets seem to react positively to the Federal Reserve's interest rate decisions.
Stocks in the region have also easily outperformed other emerging market stocks.
Four out of the top five best-performing Asian stock benchmarks this month come from the Southeast Asian region, with Thailand performing the best.
Smaller Southeast Asian markets have also become the preferred choice for fund managers preparing for a shift in Federal Reserve policy.
Over the past two months, fund managers have continued to increase their holdings of sovereign bonds in Thailand, Indonesia, and Malaysia.
Over the past three months, they have been net buyers of stocks in Indonesia, Malaysia, and the Philippines.
These capital inflows have helped Southeast Asian currencies become the best-performing currencies in the emerging market this quarter.
The Indian market plays a "pillar" role in emerging markets.
Analysts believe that a rate cut by the Federal Reserve may prompt the Reserve Bank of India to cut rates, attracting a flood of foreign capital into the local stock market, pushing the main index to a historical high on Tuesday.
Sumeet Rohra, fund manager at Singapore's Smartsun Capital Pte., said: "A rate cut by the Federal Reserve will have a positive impact on its valuation and may, with a lag, start India's own rate-cutting cycle, with India's economic growth rate helping to attract more capital inflows."
Analysts point out that the increasing weight of India in emerging market allocations after a rate cut by the Federal Reserve may also be boosted.
With its strong economic growth, growing middle class, and booming manufacturing industry, India has become a new favorite for investors.
However, not all Asian markets can benefit from the Federal Reserve's rate cuts.
Momentum indicators show that the upward momentum of the Australian bond market seems to have started to overextend.
Earlier this week, the yield on Australia's policy-sensitive three-year and ten-year government bonds once fell to the lowest level since June.
The National Australia Bank said that given the high correlation between Australian government bonds and U.S. Treasuries, whether its upward trend can continue will depend on whether the Federal Reserve is gentle enough to meet the so-called terminal rate expectation of around 2.75%.
Sydney-based senior fixed income strategist Kenneth Crompton said: "Australia's August employment data may also lead the market to reduce expectations for rate cuts by the Reserve Bank of Australia in the next six months.
Compared with the expectations of the Australian central bank, short-term Australian government bonds appear too loose, and I think there is not much value in longer-term Australian government bonds either."