Good Time To Re-enter Global Equities As Volatility Ebbs

Dubai: Volatility has ebbed in global markets, and now may be a good time to enter the market as stocks are at more healthier levels, analysts said.

The fear index fell below 20 levels, from a high of more than 50 earlier in the month, indicating that volatility may finally be cooling amid a 5 per cent recovery from the recent low in markets.

The Dow Jones Industrial Average gained 1.39 per cent to 25,309.99, while the S&P 500 index closed 1.60 per cent to 2,747.3, continuing its recovery for another session.

“We believe markets will continue to recover, see this as a good time for investors to look for opportunities, and add a number of new positions to our global tactical asset allocation,” Mark Haefele, global chief investment officer at UBS said.

“We see this as a good time for all investors to review their portfolios and rebalance their equity holdings back to their strategic asset allocation targets,” Haefele said.

UBS has an overweight position on Emerging Market sovereign bonds in US dollars relative to high grade bonds, and also on US 10-year Treasuries relative to cash.

The investment bank expects markets to enter “choppier waters” as inflation and interest rates is expected to bring back volatility that traders witnessed a few weeks ago.

“We are preparing for the new environment by protecting part of our equity holdings by buying a 10 per cent out-of-the-money put option on the S&P 500, and may add to this position in the months to come in order to diversify our strike prices,” Haefele said.

Focus

Traders will focus on the new Federal Reserve chief Jerome Powell this week, when he faces the US congress during semi-annual testimony on Tuesday. The Fed in its semi-annual report to Congress said there are serious risks on the horizon that might pause its planned pace of rate hikes despite the recent market volatility.

However, on a short- to medium-term, global markets are prone to more correction even as the fundamentals remain solid.

“This year’s strong start for equity markets reflected the optimism regarding a continuation of the positive earnings outlook, in a context of solid [and accelerating] global growth. Capex revival is an emerging theme which could support the continuation of this strong market environment ... Fundamentals of the market are still very positive, but caution is warranted as the market remain vulnerable to corrections,” according to Amundi, which is Europe’s biggest asset manager with €1.4 trillion (Dh6.3 trillion) of assets under management.

The International Monetary Fund last month revised its forecast for world economic growth in 2018, and 2019, saying that sweeping US tax cuts will boost investments in the US. The IMF forecast global growth of 3.9 per cent for this and next year, a 0.2 percentage point increase from its October estimates.