[Asia Economy Reporter Hwang Junho] Daishin Securities forecasted on the 9th that it is time to pay attention to income-type exchange-traded funds (ETFs) as the Federal Reserve's quantitative tightening becomes more visible.
The minutes of the December meeting of the U.S. Federal Open Market Committee (FOMC), released last week, included not only an acceleration of tapering but also an advancement in the outlook for the timing of the first interest rate hike. It was announced that many Fed officials agreed on the "possibility of raising rates earlier than expected" and "balance sheet reduction after the first rate hike." As a result, the interest rate futures market advanced its forecast for the Fed's first rate hike to March of this year. After the release of the minutes, the Nasdaq fell 3.3% and the S&P 500 dropped 1.9% in one day on the 6th.
In the bond market, both long- and short-term interest rates rose simultaneously. Although some analysts viewed this as an excessive reaction, given the expectation of rate hikes in the first half of the year, such tightening signals from the Fed are factors that dampen risk asset preference. Due to the high inflation level, it is also not easy to actively increase the proportion of government bonds.
Kim Haein, a researcher at Daishin Securities, explained, "Until uncertainty about the direction of interest rates and the Fed's stance is alleviated, income-type ETFs have relatively high attractiveness because they provide regular fixed income in an environment where stock price declines are a concern." However, he added, "In the case of income-type ETFs, if the stock market shows strength, the relative price increase may be smaller."
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