Nomura says worst is past for Asian markets

The worst is over for Asian emerging markets after investors pulled out billions of dollars last month on concerns the U.S. Federal Reserve will start cutting back bond purchases, according to Nomura Holdings.

“We’re through the worst of the crisis, but it doesn’t mean individual countries won’t continue to suffer significant challenges,” said Steve Ashley, London-based head of global markets at Nomura. “We remain relatively positive on the longer-term performance of risk assets in Asian emerging markets.”

The outlook for Asian emerging markets remains “very positive” over the next five to 10 years as the amount of investments by funds in these countries will likely have to catch up with the growing size of their economies, Ashley said Friday in Singapore.

The market capitalization of shares traded in China accounts for 37 percent of the nation’s gross domestic product, compared with 107 percent for stocks in the United States. The International Monetary Fund in July predicted the economies of developing Asia will expand 6.9 percent this year and 7 percent next year.

The MSCI Asia-Pacific Excluding Japan Index dropped as much as 14 percent after Chairman Ben S. Bernanke said on May 22 the Fed could start tapering its $85 billion a month U.S. bond purchases if the world’s biggest economy improves.

A Chinese manufacturing index rose to its highest level in 16 months in August as new orders jumped, adding to evidence that growth in the world’s second-largest economy is strengthening after a two-quarter slowdown, according to a government report over the weekend. The Philippine economy expanded by more than 7 percent for a fourth straight quarter in the three months to June, a separate report showed.

The positive outlook for Asian emerging markets provides an opportunity for Nomura outside Japan,

Since taking on his role in December, Ashley, 46, has pushed to integrate the bank’s 1,800 sales and trading staff from equity and fixed income. There are now trading floors handling multiple asset classes in London, New York and Singapore, he said, with one in Hong Kong to be set up by the end of the year.

“The closer collaboration between fixed income and equities is actually indicative of closer collaboration with all of the other Nomura divisions - retail, asset management, wealth management,” he said.

Markets have been “addicted to the methodone of quantitative easing,” Ashley said. “They need to wean themselves, and that’s why we see some turbulence. For the longer-term health of financial markets, it’s important that normalization takes place.”

The Fed has kept its target for overnight lending between banks in a range of zero to 0.25 percent since December 2008. Investors see a 60 percent chance policy makers will raise the so-called federal funds rate to 0.5 percent or more by January 2015, data compiled by Bloomberg from futures show. Yields on 10-year U.S. government bonds surged for a fourth month in August, touching the highest since July 2011.

Bloomberg