Caution takes hold in global markets after meltdown
DOWNSIDE IN EMERGING MARKET WAS LIMITED COMPARED TO DEVELOPED MARKETS
Traders are expected to be wary before taking any positions this week as the wounds of last week’s sell-off are still fresh on their minds.
The Dow Jones Industrial Average shed more than 1,000 points on Wednesday and Thursday, only to recover 1 per cent on Friday.
The meltdown was caused after US president Donald Trump raised a red flag on the rapid rise in interest rates.
“There will be some caution among investors and we won’t see significant buying or selling. The first two days will set the tone for the rest of the week,” Nadi Bargouti, managing director, head of asset management at Emirates Investment Bank, told Gulf News.
But overall, the markets have been overvalued even as investors have been conveniently ignoring headwinds on the trade war or interest rates front among others.
“All things that we are talking about are not new. The trade wars, the timing is not news-driven or economic. Investors are trying to justify the forward earnings, which is 17 times earnings,” Bargouti said.
Traders will closely watch the third quarter earnings from companies in the US for direction. “Thanks to Trump’s corporate tax cuts, a healthy economy, and not to mention the recent upsurge in oil prices and share buybacks, third quarter US earnings are expected to be strong once again,” Fawad Razaqzada, analyst at Forex.com said.
According to FactSet, the S&P 500 is expected to post earnings growth of 19.2 per cent and revenue gains of 7.3 per cent for the third quarter, following a 25 per cent rise in earnings and a 10 per cent increase in revenues in the second quarter.
In the region, Saudi Arabia’s Tadawul index tumbled 7 per cent yesterday, extending the global sell-off. The Tadawul index fell as low as 7,001.94, or 7.02 per cent, before trading 3.51 per cent down at 7,266.59.
The downside in emerging markets was limited compared to developed markets. The MSCI EM index dropped 2.1 per cent in the past five sessions, compared to a decline of 4.1 per cent in the MSCI World index.
“The outperformance can be attributed to weakness in the US dollar and easing of bond yields from the highs. Also, it could be a case of developed markets catching up with the fall in emerging markets in the recent past,” Aditya Pugalia, director, Financial Markets Research at Emirates NBD said.
Elsewhere, Indian markets were also engulfed in last week’s meltdown. Traders have been trying to get more evidence of deliverables of the promises that the Narendra Modi government gave in 2014, when they took power. “With the Modi government, we had a lot of high hopes, and they are not getting delivered. The Indian currency is a reflection of disappointment as the economy has not delivered what investors had hoped for,” Bargouti added.
The S&P BSE Sensex Index traded 2.15 per cent higher at 34,733.58. The index has shed more than 4,000 points from its all-time high of 38,989.65 late last August.
Saudi Arabia’s Tadawul index tumbled 7 per cent yesterday, extending the global sell-off after threats of sanctions from US president Donald Trump.
The Tadawul index fell as low as 7,001.94, or 7.02 per cent on the day, before trading 3.51 per cent down at 7,266.59. The index has shed more than 5.15 per cent in the past week or so.
“Saudi market is likely reacting to the events over the weekend. Such steep correction for the past two sessions would likely have triggered margin calls and stop losses that can exaggerate the decline,” Nishit Lakhotia, head of research at Sicobank said.
Out of the 188 listed companies, shares of 182 fell. Traded value stood at 5.5 billion Saudi riyals, compared to 4 billion riyals in the previous session.
Energy and materials index led the decline with more than 5 per cent losses in the overall gauge.
Saudi Basic Industries Corp. closed 5.34 per cent lower at 110 riyals. Al Rajhi Bank closed 0.96 per cent lower at 82.10 riyals.
There could be an opportunity for traders after a 12 per cent decline on the index since last week. “I think this sell-off offers an excellent time to buy beta blue chip names that will be a beneficiary of MSCI and FTSE inclusion. While markets can be volatile in the immediate few trading sessions, I expect Tadawul to trend higher towards the end of the year and also remain strong in 2019’s first half, led by actual foreign fund flows,” Lakhotia said.
The current weakness means that the Tadawul index has almost wiped off its gains accumulated so far in the year.
Shiv Prakash, senior analyst with First Abu Dhabi Bank Securities, concurred.
“Long-term investors may take advantage of the current market weakness and as we form a clear reversal pattern, may buy select strong fundamental stocks from the banking and petchem sector,” Prakash said.
Impact on UAE
Yesterday’s sell-off in Saudi Arabia started to impact UAE markets in mid-morning, as traders resorted to selling in local markets to meet the margin requirements in Riyadh.
The Dubai Financial Market (DFM) general index closed 1.50 per cent lower at 2,713.93. Dubai Islamic Bank and Emaar Properties were the worst hit. DIB closed 1.90 per cent lower at Dh5.15, while Emaar Properties closed 2.46 per cent lower at Dh4.76.
Salama Insurance continued its gaining streak despite the overall weakness in the markets.
The downside was limited on the Abu Dhabi Securities Exchange (ADX) general index due to support from First Abu Dhabi Bank and Etisalat.
The ADX index closed 0.74 per cent lower at 4,931.14. Etisalat closed 0.06 per cent higher at Dh16.6. Elsewhere in the Gulf, the Muscat MSM 30 index closed 0.17 per cent higher at 4,497.36.