Fed Tapering Won't Push 'Asia Off a Cliff'
The possibility of the U.S. tapering its quantitative easing (QE) program has resulted in large fund flows out of Asia, but the CEO of Southeast Asia's biggest lender, DBS, says its impact on the region's economies is overstated.
Piyush Gupta, CEO of DBS told CNBC that if Asian economies slow down by a percent or two from the tapering of the U.S. Federal Reserve's monetary stimulus, it won't be the "end of the world" for the region's countries.
"I think the markets are running ahead of themselves," Gupta said on the sidelines of its Asian Insights Conference in Singapore on Friday. "We've seen the story before. QE1 came to an end, QE2 came to an end, [and] QE3 is a tapering off process. So, I certainly don't believe that the macroeconomies in Asia are going to fall off a cliff."
Gupta added that financial markets will always react and it's up "to us to be smart how we position for those reactions."
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Gupta's comments come as emerging market equities, bonds and currencies have faced a drubbing since the U.S. central bank indicated it could taper its massive $85 billion monthly bond buying purchases later this year, leading to capital leaving the region and back into developed economies and the safety of the U.S. dollar.
Data from fund tracker EPFR Global shows investors pulled out a record $10 billion from emerging markets debt and equity funds last week, Reuters reported. The U.S. dollar index, a measure of the dollar's value against a basket of currencies, is up over 5 percent this year.
Gupta said DBS' business in emerging markets is for the long-term and a slowdown in key markets like China, India and Indonesia will still allow them to find the right "niches" for growth.
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"All emerging economies will go through cycles, and it's highly unlikely that we'll run our business through quarterly cycles," Gupta said.
DBS, meanwhile, posted a record quarterly profit of $770.3 million in the first quarter, beating expectations as higher fee and commission income offset a slight drop in incomes from its key lending business, Reuters reported.
A rising interest rate environment as central banks start following the lead of the U.S. Federal Reserve will also bode well for the bank's business in the long term, Gupta said.
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"We can gap and run the yield curve once the yield curve has moved; we're very liquid, very surplus," Gupta said. "We're positively correlated to a rising interest rate. So, we're frankly looking forward to an environment where we can start making some spreads on our deposits."
In June, Indonesia was the first Asian central bank since 2011 to hike interest rates by 25 basis points to 6 percent as a pre-emptive strike against inflation as the local currency weakened.
- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu