Fed rate hike a temporary gain for Asia local markets

After almost a decade, the Fed initiated its monetary tightening policy with a 25 base point rate hike yesterday, as expected. The Fed Chair Yellen indicated that the central bank is on the path of policy tightening, and it will increase its policy rate gradually.

The FX, equity, and bond markets started reacting to the rate hike. The EM local currency and bond markets are positively reacted to the rate hike, and similar reaction is foreseen in EM Asia in the near future.

"The improvement in risk appetite following the Fed hike also helped EM currencies to absorb the hike easily. In the near term as trading winds down for the year and flows thin, there may be further respite for EM Asia currencies, but we do not expect this to persist into 2016", states Barclays in a research note to its client.