Saturday, Jul 14, 2012
Abu Dhabi
The regional markets are expected to trade sideways on low volumes this week, tracking broader investor sentiments on the global financial markets. With the beginning of the local earnings season that could provide markets with a local catalyst still some days away, investors would tread with cautious optimism, say analysts.
However, international oil prices, which continue to be at elevated levels, would limit the downside risks as several countries within the region are major oil exporters and revenue from crude exports form major source of governments’ income.
The global markets have been disappointed with the US Federal Reserve, which has put further quantitative easing on hold until economic situation in the world’s largest economy further deteriorates. With growth in China, India and Europe slowing, the markets fear there may soon be profit warnings from listed companies as global consumer spending and consumption patterns take a turn for the worse.
Over-weight in emerging markets
“On a global basis, our asset allocation models have been updated for July and show a deteriorating outlook for equities in developed markets and we recommend a slight over-weight in emerging markets. Equities outside the G7 are expensive relative to developed markets on a valuation basis, but the momentum behind credit growth, the abundance of liquidity, earnings revisions, and the slope of yield curves make for a more attractive investment proposition than developed markets,” Mark McFarland, chief investment strategist — private banking at Emirates NBD, said in his latest weekly research note.
He added: “In terms of other signals, our models still point to under-weighting US equities versus fixed income, but the underweight is becoming less as credit spreads have tightened. Our core view, that small cap equities or high yield debt should continue to remain the preferred expression in US market, is still vindicated by low risk-free interest rates and high dividend yields.”
Pradeep Unni, senior relationship manager at Dubai-based Richcomm Global Services DMCC, said the highlights of US Fed minutes showed participants agreed that the information received since the Committee’s previous meeting suggested that the economy had continued to expand moderately, though many noted that a variety of indicators showed smaller gains than had been anticipated. Growth in employment, in particular, appeared to have slowed in recent months, and the unemployment rate remained elevated.
By Himendra Mohan Kumar Staff Reporter
Gulf News 2012. All rights reserved.
