Dubai: A global stock market rally could continue despite concerns over the likelihood of the US Federal Reserve raising rates for the first time since 2006, even as investors ignore bullish forecasts on the American economy.
On Friday, the Standard & Poor’s 500 Index surged 3.3 percent to cap its best week of 2015, while the Dow Jones ended 0.50 per cent higher at 17,823.81.
“People are focussing on rate hike scenario though there are a lot of concerns about Chinese growth and Japan and the bright spot seem to be the US,” Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group. The US central bank’s policy-setting Federal Open Market Committee will convene in Washington on December 15-16 to discuss a possible rate change.
Sebastien Henin, head of asset management at The National Investor said psychologically, a rate hike would impact investors as the first increase in nearly a decade would change most life for bond issuers.
“From a financing point of view, the cost of financing has increased dramatically for bond issuers,” Henin said. A rate increase would like drive funds from bond markets into equities.
In the local markets, Dubai and Abu Dhabi stocks look attractive at current levels after the main indexes have shed more than a fifth of their values since the start of the year.
“The local markets are trading at a discount, so there is a counter balance of really good valuations against the technical, which are slightly negative,” said Khokhar,
Oil, from where the Gulf countries derives most of its revenues may remain subdued. In the medium term, oil prices should trade between $40-$65 per barrel, said Henin.
On Friday, Brent crude jumped more than a per cent to be at $44.66. Oil has slumped about 47 per cent in the past year amid speculation a surplus will persist.
