Fed cut may not revive flows in Asia

The US Federal Reserve cut the key interest rate on Wednesday—a first in this calendar year.

- Harsha Jethmalani [e-mail]

After the latest 25-basis-point reduction, more easing may be in the offing. Given persistent weakness in the US dollar, easing monetary policy could lead to reallocation of foreign funds towards other assets such as emerging market (EM) and Asian equities.

Usually, a weaker dollar and a more accommodating US monetary policy tend to boost EM equities and currencies, especially those with strong growth potential. But this time, the impact of trade tariffs on various Asian economies would be a critical variable for foreign investors while rejigging portfolios. This means fund inflows to EMs, if any, may be selective.