Emerging Markets Review

Fed Raises Rates: What’s Next?

In mid-December, the Federal Reserve announced the first rate hike in nearly 10 years. Here are four things to keep in mind.

1.	The first rate hike usually indicates economic improvement, not an imminent market downturn.

It’s important to keep in mind the context of today’s action. Historically, the first Fed hikes have not precipitated economic or market downturns. Typically, the first rate increase has been a signal that the economy has gained traction, and on average, asset markets have typically performed relatively well in the year or two after the first hike.

2.	This round of rate hikes may be gradual.

This round of rates hikes is starting as the Fed faces a far weaker backdrop for global growth—as well as much lower inflation—than is typical for the first rate hike in a cycle. This would seem to imply the Fed will move forward at a gradual pace of tightening. This weaker global and inflation environment makes a dramatic spike in interest rates less likely.

3.	Higher rates could pressure commodities and emerging markets.

It is important to keep in mind that Fed monetary tightening does tighten global dollar liquidity as well. Because the dollar is the world’s reserve currency, this tighter liquidity has made it more difficult for many asset prices in recent months—including emerging-market equities, non-U.S. currencies, and commodity prices. These markets may remain volatile in the aftermath of the Fed’s first hike.

4.	The economy could stabilize.

Finally, our outlook is that the global economy will digest the Fed hike over the coming months. The rate increase may even boost confidence in the U.S. economy by reassuring us all that we are finally on a path to normalization. And with the U.S. still in a steady mid-cycle expansion, we expect the global economy to stabilize over the course of 2016. Markets are likely to be choppy, but overall I think the outlook for equities should be relatively favorable as the year unfolds.

https://www.fidelity.com/viewpoints/market-and-economic-insights/fed-raises-rate?ccsource=email_weekly

© 2015 These presentations are provided for informational purposes only. Read relevant legal disclosures.

Rising Oil Consumption in the Emerging Markets Will Persist...

Western Europe, France, Japan, Norway and the U.K. all use less oil on a per capita basis than they did in the 1970s.

This trend is why emerging countries, especially Asia, will be the epicenter of oil demand growth for years to come.

Q&A: Pimco's Mohamed El-Erian - Courtesy of Fortune Magazine

Pimco's CEO says individual investors must change their investing style, such as being less U.S.-centric.
By Geoff Colvin, senior editor at large

Pimco, the world's largest bond investor, has benefited from investors' flight to quality over the past two years and now manages about $1 trillion in assets.

Mohamed El-Erian, 51, is still thinking large and deep thoughts; his book, "When Markets Collide: Investment Strategies for the Age of Global Economic Change," won the Financial Times Goldman Sachs business book of the year award last year.

 
Mr. El- Erian sat down recently with Fortune's Geoff Colvin to talk about threats to individual investors, the best framework for an investment portfolio, how the 2008 financial meltdown was like a double-drive-through McDonald's, and much else.

 Here's a sampling of  some of the questions....

We've had one quarter of solid economic growth. Is the recession over?

Why are a lot of very positive things unlikely to occur for the consumer?

If American consumers start saving more, isn't that a good thing?

From the perspective of an individual investor, is the multipolar world a good thing or a bad thing?

What are the most important things that individual investors need to do differently?

What's the best protection for an individual investor against inflation?

In your book you present an asset allocation for a typical U.S. investor. Only 15% is in U.S. equities, which is much less than most U.S. investors hold. And only 14% is in bonds, U.S. and non-U.S., which seems like not very much. What's the logic?

You've said that this asset allocation -- which includes many other elements [see table] -- could be expected to return +5% to +7% a year in real terms over the long run. Many investors believe that U.S. equities will return much more over time. Is that just not correct?

A lot of new financial regulation is in the works. Is it going to be, as it so often is, regulation that will prevent the crisis that just happened and not regulation that will prevent the next crisis?

After the September 2008 crisis, you mentioned in Fortune that you'd asked your wife to withdraw cash from the bank. What was your life like?

What's your bottom line advice to individual investors in today's environment?

Full Interview - Click Here: Investing Advice from Mohamed El-Erian: Q&A with Fortune - Dec. 10, 2009