The US Federal Reserve may be the main monetary policy body in the US, but its actions exert global ramifications.

The minutes of January’s Federal Open Market Committee (FOMC) meeting were released Wednesday and revealed a deepening divided between its members over just how long the Fed’s program of quantitative easing (QE3) should continue.

The minutes reaffirmed the Fed’s commitment to maintain current rate levels as long as unemployment hovers around 6.5 percent and inflation remains low. However, they also reflected concerns that its easy money policies might ultimately foster too much risk taking and instability in the markets.

Given those discussions, there’s increasing concern that the Fed might pull out of QE3 earlier than expected.

That concern helped drive a sell-off in the emerging markets, with the MSCI Emerging Markets Index erasing all of its gains for the year overnight. That’s because much of the liquidity that the Fed has been creating has been driving interest in risk assets such as emerging market stocks.

The Fed wasn’t the only central bank creating uncertainty.

The People’s Bank of China (PBOC) also announced yesterday that it had withdrawn CNY910 billion (USD146 billion) of liquidity from its own banking system, its single largest withdrawal on record. China’s State Council, which is headed by Chinese Premier Wen Jiabao, also issued a directive to local authorities that home-buying restrictions should be strictly enforced in areas where there have been extreme rises in home prices. Some regions have also been directed to report annual price control goals to Beijing, to maintain new home price stability.

While the end of easy money could create a number of reversals in the global markets as risk assets become less attractive, it’s not really bad news in and of itself. It’s a signal that the global recovery is becoming increasingly self-sustaining. It’s also evidence that central banks around the world recognize the role they play in creating asset bubbles, such as the recent real estate bubble in the US that was a consequence of easy money.

In the case of the PBOC easing itself out of its liquidity injections, it’s simply handing the reins of credit growth over to its banking sector. The final tally for total Chinese credit creation in January came in at RMB2.5 trillion, a figure includes bank lending and financing provided by non-bank institutions. Consequently, the PBOC’s withdrawal represents less than half the credit created in January alone.

That sounds like a prudent move to me, particularly since the Chinese economy is clearly reaccelerating, as the Chinese central bank works to keep inflation in check. Currency has also been leaking out of China for more than a year now, as wealthy individuals and Chinese companies have been buying up properties around the world, sending students abroad and buying luxury goods outside of China’s borders, despite strict capital controls. By tightening up liquidity as the Chinese government grows, less cash will flow out of the country as more opportunities can be found closer to home.

The Chinese move in the property sector is also sound policy, considering that surging property prices were a major driver of the inflation the country battled in 2010 and 2011. The development to watch now is whether the government moves slowly enough to allow for a continued housing recovery and concomitant construction resurgence, after authorities basically stomped on housing last year to keep speculation in check. That’s particularly important, because the pace of infrastructure development in China is likely to slow over the coming months, as the government hands the reins over to its quasi-private sector.

So for now, I wouldn’t be too concerned about either the US Federal Reserve or the PBOC tightening the reins on monetary policy. While it will create volatility as they and other central banks around the world eventually begin normalizing policy, it’s an event we all knew—or at least should have been hoping—would eventually occur.

Portfolio Roundup

While it won’t officially report 2012 earnings until late March, shares of Belle International (Hong Kong: 1880, OTC: BELLY) slid more than 16 percent overnight, after management said that net profit for the year will “be marginally higher as compared to the Group’s net profit for the year ended 31 December 2011.”

It’s likely that net 2012 profits will come in somewhere around RMB4.4 million, largely thanks to the fact that the Chinese economy didn’t begin showing meaningful signs of a recovery until the fourth quarter of the year. As a result, consumer spending was constrained for most of 2012, denting sales by China’s largest maker of footwear.
Lagging 2012 profits at the company shouldn’t have been a surprise and its fortune will shift as the Chinese economy continues to improve over the course of 2013.

Belle International had been trading above its buy target for the past few months, so this is a great opportunity to pick up shares below HKD17.

Chinese cement maker Anhui Conch Cement (Hong Kong: 914, OTC: AHCHY) also took a slide last night on the news that the Chinese government was continuing to tighten down on the country’s property market.

While that will have some impact on the company’s bottom line, the real driver of its earnings is the government’s own affordable home building program. Chinese government home construction largely consists of cement apartment blocks in urban areas and its program to build 6 million new units of affordable housing this year aren’t affected by the recent announcement.

Moreover, Anhui Conch Cement is enjoying continued growth in exports, reducing its dependency on the Chinese market.

Buy Anhui Conch Cement up to HKD40.