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That is what the markets wanted to hear and stocks responded with a rally. The discussion of Armageddon in the markets has been put aside and the message that is going around is that the US economy is on track and therefore the tapering program.
Putting aside the snap-back reaction to the Fed, there have been questions around what the Fed will do with their US$4 trillion balance sheet and whether, fundamentally, the US labour market has actually improved.
While this will be a discussion for some period of time, the Fed’s stimulus reduction program will continue to dampen the emerging markets (EMs). The losses in the EMs were what made the markets jittery and the recovery in stocks is not based on any changes in the fundamentals, but rather perception.
Investors are likely to remain cautious especially in the EMs. Although, Asian markets have fared better. The exit of QE will have an impact on the equity markets, unless these countries show signs of development in their macro-economic data.
The exit of foreign funds continues in North Asia, in places such as South Korea (US$85 million), and Taiwan (US$209 million). Net inflows are notable in Southeast Asia, in countries such as Indonesia (US$113 million), the Philippines (US$13 million) and Vietnam (US$8.2 million), so far this week.