The Dubai Financial Market
The Dubai Financial Market. Dubai index breached its 100-day moving average, a technical indicator suggesting bullish outlook, after gaining for a second straight week. Image Credit: Pankaj Sharma/Gulf News Archives

Dubai: The best rally in global equities since 1990s may be coming to an end sooner or later.

The Dow Jones Industrial Average closed Friday’s session 0.70 per cent higher at 26,031.81, extending its gaining streak for ninth weeks, its longest since 1995. The rally came on the top of weakness in the last quarter to December.

The S&P 500 index and Nasdaq composite have also jumped up to 13 per cent gains so far in the year. The turnaround in sentiment was largely due to change in stance from the US Federal Reserve, which changed its tone from hawkish to dovish. The central bank said last week that weak policymakers expect rates to be on hold for now due to low inflation and tightening financial conditions in both the US and other economies.

7.4%

Gain in the DFM index so far this month

“This rally has run its course already, We don’t know whether this will stop today or in the next month. The real challenge for those who are bullish now is the fact that growth weakness may persist,” Luca Paolini, Chief Strategist, Pictet Asset Management told Gulf News.

The major risks that Paolini pointed out were deceleration in growth, that has been running at 2.5 per cent, about 1 per cent lower than a year ago. This along with slowing global trade could dampen sentiment.

Bulls have awakened suddenly in Dubai and are gaining an upper hand, making it the best performing regional market.

-

“There has been a peak in earnings, and compression in margins due to higher wages. From my point of view, this slowing growth may result in US corporations reconsidering their investments plans,” Paolini said.

Conversely, “if we see an acceleration in growth, because of easing trade tensions then the fed policy will have to be rethinked, of which investors are becoming complecant for the next six months, so we think that this rally to fizzle out soon,” Paolini added.

3.22%

Rise in Emaar Properties’ price on Sunday

For now, however, analysts feel that the risk appetite may be supported by good news on trade negotiations between China and the US, which may deadline to reach a deal.

Sweet spot:

Pictet thinks that China, which has been reflating its economy, and emerging markets are in a ‘sweet spot.’

“China is reflating its economy through monetary and fiscal stimulus. They are moving in the right direction as far as the trade deal with the US goes. The Chinese market have not been impacted by trade fears, and valuations are positive. for emerging markets,” Paolini said, The Shanghai Composite Index has been one of the best performing emerging market with 12.4 per cent gains so far in the year. The MSCI emerging market has gained 10 per cent in the same time period.

Gold

Gold prices may continue to extend gains amid central bank buying.

Comex April gold rose 0.43 per cent to hit a high of nearly $1,348 an ounce last week. The yellow metal has gained 7.7 per cent in the past three months.

“We maintain a bullish outlook for the yellow metal given the prospect of a weaker dollar, stock markets having run ahead of themselves to the upside and bond yields telling us all is not well across some of the major economies,” said Ole Hansen, head of commodity strategy, Saxo Bank.

Central banks have been buying gold to levels not seen since the second world war due to rising geopolitical risks and stronger dollar.