Tuesday, 13 December 2016

Stock rally pauses but emerging markets looking “attractive”

Markets were mixed on Monday.

The S&P 500 Index fell 0.1 percent but the Dow Jones Industrial Average rose 0.2 percent.

In Europe, the STOXX Europe 600 fell 0.5 percent but the oil and gas sector jumped 2.2 percent.

In Asia, the Nikkei 225 rose 0.8 percent but the Shanghai Composite Index fell 2.5 percent after China Vanke Co.’s president predicted home sales will drop “significantly” in the coming year.

Oil surged, West Texas Intermediate and Brent crude jumping 2.6 and 2.5 percent respectively. However, copper fell 1.5 percent.

Bonds continued to fall, with US 10-year Treasury yields rising as much as six basis points before dipping to end up one basis point at 2.48 percent.

While stock markets paused for a breather from its rally on Monday, Bryan Rich, founder of billionairesportfolio.com and fxtraderprofessional.com, thinks that the stock market rally is “just getting started”.

“The long-term trajectory of stocks still has a large gap to close to restore the lost gains of the past nine-plus years, from the 2007 pre-crisis highs,” he wrote at Forbes. “And from a valuation standpoint, stocks are still quite cheap relative to ultra-low interest rate environments.”

However, some analysts think that the post-election surge in US stocks could end quickly, according to a CNBC report.

“It's clear the market is willing to give President-elect Donald Trump the benefit of the doubt right now,” said Quincy Krosby, market strategist at Prudential Financial. “But if history is any guide, the honeymoon always ends.”

However, if the US stock market rally comes to a halt, there may still be opportunities in emerging markets, according to a Bloomberg report.

A survey conducted by Citigroup showed that 50 percent of respondents think emerging-market economies will re-establish themselves as a “dominant driver of global growth” in 2017, and that could lure global investors back into emerging-market stocks.

“When you take into account the relative valuation of stocks and the relative valuation of the currencies, we do see value,” said Johanna Kyrklund, head of multi-asset investments at Schroder. “When you combine the two it becomes quite attractive.”

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