A rate hike from the U.S. Federal Reserve could spark a sell-off in Asian stocks and trigger capital outflows in China, according to Sam Le Cornu, co-head of Asian listed equities & head of investments at Macquarie Investment Management.
Markets have been fixated on monetary policy moves by central banks of late, with speculation of an interest rate hike by the Fed next month rising after some policymakers suggested the world's largest economy was picking up pace. A possible increase by the Fed will also come at a time when other major central banks such as the Bank of Japan and the European Central Bank are still biased to provide more stimulus.
"Unfortunately, sentiment has a huge amount of influence on the markets. If there is a Fed rate rise, there will implications for equities across Asia," Le Cornu said
"All assets are typically priced off of the risk-free rate of that government," Le Cornu told CNBC's "Squawkbox" on Thursday. A rise in the risk-free rate could be damaging to equities, he explained.
Le Cornu also said he expected U.S. Federal Reserve Chair Janet Yellen to address what would be in the Fed's monetary toolbox and the medium-term implications of a Fed rate hike in her speech during the Jackson Hole Symposium on Friday.
Markets have been quiet this week as traders stay on the sidelines directly ahead of the annual meeting of the world's top central bankers, themed "Designing Resilient Monetary Policy for the Future."
Emerging markets have benefited from low interest rates in developed markets as investors seeking higher returns have piled money. A tightening of monetary policy in the U.S. is expected to push up bond yields and narrow the yield gap over emerging markets, reversing these flows.
Higher interest rates in the U.S. could have adverse implications for China, the world's second-largest economy. Capital outflows that have abated recently could pick up pace again, Le Cornu said.
"Capital flows out of China will likely occur. There'll be implications on currencies throughout Asia and equities as a whole, will potentially be sold off," Le Cornu said.