Dubai: Emerging market equities this week are expected to be weighed down by a stronger dollar and rising US treasury yields.
On Friday, the MSCI Emerging Market index ended 0.55 per cent lower at 1,137.75 after losing 2.3 per cent of its value last week. The weekly performance compares with 0.5 per cent loss on the MSCI World Equity index.
“Emerging Market equities have been on the backfoot on concerns over strong dollar and trade,” Saleem Khokhar, head of investment management at the First Abu Dhabi Bank Asset Management Group, told Gulf News.
“The stronger dollar is still there and that remains a concern, and trade issues seem to be calming down. They will remain on the backfoot for a little more time,” he added. “[A] stronger dollar raises concerns on local currency financing, while trade concerns would limit the ability to increase exports.”
There also seems to be a conciliatory tone on the trade talk front after China said it would “significantly increase purchases” of US goods, an indication of attempts to avert a looming trade war.
In the United States, the Dow Jones Industrial Average closed almost steady to 24,720.92, while the S&P 500 lost 6 points, or 0.22 per cent, to close at 2,714.13.
Fixed income
“We have seen the 10-year US yields above 3 per cent and also widening spreads for corporate issuances. This is on the back of investor concern on the speed and extent of further US rate rises. In the near-term, bond investors are likely to remain cautious as they await stability,” Khokhar said.
Ten-year US Treasury yields touched their highest level in seven years.
The yields, which move inversely to the price, rose to 3.128 per cent — their highest since July 2011.
“With yields remaining in focus, investors’ will be sifting for clues from the minutes of the last [Federal Reserve] meeting which will be released later this week. They will also be paying attention to comments from various Fed speakers, including Fed Chair Jerome Powell,” said Aditya Pugalia, a director with Emirates NBD.
