Dubai: The growing concern over geopolitics in Asia and Europe could hit global equities and trigger another downside, analysts said on Sunday.
The Dow Jones Industrial Average closed 0.24 per cent lower to 24,753.09, after losing nearly 1 per cent in the past one week. The S&P 500 index closed 0.24 per cent lower to 2,721.33.
“Despite a shortened trading week in the US, the list of worries for equities investors continues to climb with renewed geopolitical risks in Asia, a populist government in Italy, and a corruption scandal in Spain. Leadership of the energy sector has also come under challenge with the recent prospect of an increase in crude oil production caps in Russia and Saudi Arabia,” Vaqar Zuberi, Head of Hedge Funds at Mirabaud Asset Management said.
“In light of these concerns, US and European bourses risk a further downside of 2-5 per cent over the coming weeks before market attention turns to second quarter corporate earnings reports,” Zuberi said.
A faster than expected rise in inflation and US interest rates along with possibilities of a trade war with China along with tensions over North Korea have kept the investors on tenterhooks leading to a weak performance of the US indices since January. The Dow index has gained only 0.14 per cent so far in the year compared to more than 25 per cent gains last year.
Tougher
“Geopolitical situations have become tougher for equity investors. We think political development in Italy will become a major thorn for investors going ahead. Investors would look at the spread between German and Italian 10-year yields,” Naeem Aslam, chief market analyst with Think Markets said.
The Italian FTSE MIB index continued its decline for another session. The index closed 1.5 per cent lower to 22,398.15. The index has shed 6 per cent of its value in the past one month from a high of near 24,000.
Italy’s 10-year bond yield, pushed up by growing political risks, hit a 14-month high — widening the gap over German Bund yields by 18 basis points.
The dollar index hit the strongest level since mid-November before closing 0.44 per cent higher to 94.166. The index was up 0.6 per cent for the week.
“The stance from the Fed is supportive for the dollar and we are not expecting any major downside for the dollar,” Aslam said.
