Fed rate hike to hit commodities-linked firms, economies

Companies and countries whose fortunes are tied to commodities could see their borrowing costs climb as an interest rate increase by the U.S. Federal Reserve exacerbates the impact of lower raw material prices, top asset manager Schroders warned on Wednesday.

"Tighter dollar liquidity is going to put quite a lot of pressure on companies who survived the last year with commodities prices having fallen," chief economist and strategist for Schroders, Keith Wade, told CNBC's "Street Signs" on Wednesday.

"As they look into next year, they are going to be asking themselves: are commodities prices going to recover, are our banks going to continue to fund this if dollar liquidity is tightening? ... The answers to those questions might be a bit more difficult."

Schroders oversees $446.5 billion in assets.

Higher U.S. interest rates will make borrowing more expensive for commodities-linked companies, which are already suffering as China's economic slowdown cools demands for raw materials amid a global supply surplus.

A Fed interest rate hike - expected by the market this month - will also likely strengthen the U.S. dollar, which is used to price major commodities, making raw materials more expensive in producers' local currencies and driving investors to yield-generating capital assets instead.

As it is, prices of industrial commodities from oil to iron ore have collapsed in the past year, hitting the stock prices of producers and traders.

Jim Urquhart | Reuters

Commodity companies such as Glencore, for instance, have had to defend their liquidity and debt-repayment abilities, after stock prices tanked on fears of balance sheet weakness. Countries that are reliant on commodities for revenue, meanwhile, are facing problems with national budgets.

Schroders expects little respite from these difficulties.

"We would [pay attention] to commodities-producing companies and economies around the world, particularly places like Brazil where we're seeing a deep recession and we're seeing very little signs of a turnaround," said Wade, who added that the multiple strains could produce credit events.