Asian financial markets have faced strong capital outflows when the Fed changed the direction of monetary policy.

Asian countries will face three main challenges next year, said Carlos Casanova, senior economist at private bank UBP.
Speaking to CNBC recently, Mr. Canasova said: “The number of COVID-19 cases is increasing, we have taken into account that economic growth in China slows down to 5%. Now, the minutes of the Fed meeting suggest that the pace of policy tightening will be faster than expected. He also added that the above factors pose risks common to the whole region.
The US Federal Reserve (Fed) surprised investors last week after minutes of the Fed’s December 2021 meeting showed that members are willing to tighten monetary policy more aggressively. compared with previous expectations.
The Fed sent a message that it may soon raise the basic interest rate for the dollar, reduce its bond-buying program and engage in many high-level conversations related to reducing bond holdings Ministry of Finance. US government and mortgage-backed securities.
Although Asian emerging markets are in good shape, this group of markets is easily affected by the above factors, especially if the Fed tightens policy aggressively, Mr. Canasova analyzed.
“There will certainly be similarities in real interest rates between emerging markets in Asia and the US. This leads to the withdrawal of capital from the region, especially the group of economies that are susceptible to negative impacts, “said Mr. Canasova.
In 2013, the Fed talked about tightening monetary policy when it began to scale back its asset purchases. Investors at that time panicked and immediately sold bonds, so the yield on US Treasury bonds skyrocketed.
As a result, emerging markets in Asia experienced strong capital outflows and deep currency declines, forcing central banks in many countries in the region to raise interest rates to protect their capital accounts.
It will all depend on how the Fed acts on policy normalization in the coming months, Casanova said.
“What we’re trying to avoid is a situation where they’re both downsizing their balance sheet at the same time they’re reducing their balance sheet size and raising interest rates three times in 2022,” he stressed. . The result of this could be that the cash flow will be withdrawn from the region and create more deflationary pressure.
In a report called “Long-Term Capital Market Assumptions”, JP Morgan announced that increasing global demand and large-scale spending packages have helped economies have a strong recovery speed, because So now the stimulus packages can completely be cut, the growth outlook of the global economy is not heavily affected by the COVID-19 pandemic.
Given the large-scale policy framework, economic experts and strategists predict a variety of consequences. In its 2022 outlook report, Barclays bank emphasized that one factor supporting global growth is the strong recovery of the Indian economy, GDP growth is estimated at 7.8%.
An expert at RBC Capital Markets meanwhile believes that: “On a global scale, global economic growth will slow down in 2022 because of the relatively high comparative level of 2021.”

According to RBC Markets, the focus of Asia-Pacific economic growth is shifting to Southeast Asia, as a slowing pandemic and higher commodity prices have worsened growth prospects for Malaysia and Indonesia. , although the Omicron mutation is increasing the instability somewhat.
Given that economic reopening is irreversible and market volatility is reduced, experts say, 2022 can be seen as providing important support for both the Malaysian ringgit and the Malaysian rupiah. Indonesia is inherently undervalued.
For China, Asia’s largest economy, the predictions are generally the same in that the negative volatility in the real estate market will adversely affect GDP growth by this sector and related industries. contributes up to 30% of China’s GDP.

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