Dubai: This summer’s calm in global markets has finally come to an end.

A sell-off in global equities intensified on Monday, with over 2 per cent losses in Europe and Asia, on expectations of an early rate hike from the US Federal Reserve and uncertainty over whether the European Central Bank (ECB) will continue its easy money policy.

The EURO STOXX 50 index was 2.12 per cent lower at 2,988.55, the largest fall since late June. The German DAX index was 2 per cent lower at 10,361.84. In Asia, the Shanghai Composite Index closed down 1.85 per cent at 3,021.98. The Dow Jones Industrial Average fell 0.44 per cent at 18,005.31 a few minutes after opening, falling to 17,995, while the S&P 500 also fell 0.29 per cent to 2,123.54.

Expectations are now building up that the US Federal Reserve may hike rates in its September 20-21 meeting, against the previous expectations of an increase in December.

“The concerns are coming on the rate scenario front. The possibility of an early hike in September rather than in December is spooking the market,” Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group told Gulf News. A rate hike would make borrowing for companies more expensive.

Also, the ECB last week failed to give clear guidance on whether it would continue with its 1 trillion euro bond buying program, scheduled to end in March 2017. That move also triggered a rout in developed and emerging equities.

“The valuations in developed market are high, and there was an expectation that rates would remain lower for longer, so if this situation reverses, that would a trigger for some nervousness,” said Khokhar, adding “we would expect to the yen and the dollar to strengthen as we move down the road.”

Outlook

“The outlook is soft. Volatility would pick up going ahead. We would continue to see a little more volatility until the market adjusts a slightly more hawkish stance that is Fed is taking,” Khokhar said.

The rout would also impact the emerging market peers in the Gulf, the UAE and Qatar equities, which were shut for Eid Al Adha holidays. Trading will resume on Thursday.

“Our markets would mirror the emerging markets but to a lesser degree as we are pegged to the dollar,” said Khokhar. Emerging market had outperformed the UAE, and Qatar stocks due to higher fund flows. “The valuations we have over here is significantly lower than what we have in emerging market space, so we are at the lower end of the range when it comes to valuations,” Khokhar said.

On Thursday, Dubai Financial Market General Index closed 0.04 per cent higher at 3,519.22, while Abu Dhabi Securities Exchange General Index closed 0.20 per cent higher at 4,516.38. Qatar exchange index closed 0.95 per cent lower at 10,534.10.