Dubai: Growing pessimism on the delay in implementation of tax reform in the United States may weigh on market sentiment for the time being.
On Friday, the Dow Jones Industrial Average closed 0.17 per cent lower at 23,422.21, after losing 0.50 per cent in the week, its first fall in the past nine weeks. The S&P 500 index closed 0.09 per cent lower at 2,582.30.
“The way the market closed on Thursday and Friday, has put global equities in a weak footing. The tax plan will weigh on market sentiment, but it is too early to call it a reversal of trend.” said Nadi Bargouti, head of asset management, managing director with Emirates Investment Bank.
The equity markets in the US have been on a record breaking spree due to optimism about the general US economy amid strong earnings from companies, along with expectations of spending from the US government on infrastructure and expectations of tax reform.
“There are many moving parts. There are some positives in terms of earnings, and economic developments, and negatives from geo-politics. It is difficult to see which factor will have a bigger influence. The first couple of days of next week will give an indication of the direction,” said Bargouti.
The Dow Jones Industrial Average has gained 27 per cent in the past year, while the S&P 500 index has gained 21.7 per cent.
Bargouti from Emirates Investment Bank is waiting for technical indicators to decide further course of action.
“We are positioned for a reversal in trend. All fundamental indicators are giving us sell signal, but there is still momentum left if we follow the technical signals. Once the technical indicators confirm the fundamentals, we will start trimming US exposure,” said Bargouti.
EIB’s exposure to US equities is around 5 per cent below the benchmark, Bargouti said, adding that diversification may backfire at times.
“There is a problem with diversification. The concern with US equities is that they are heavy weight, so the indirect impact on other global equity market will be quite significant. The benefit of diversification in times of stress becomes less relevant,” Bargouti said.
Factbox: Bitcoin falls $1,700 since Wednesday
Bitcoin prices lost 29 per cent or $1,775 (Dh6,514) of its value since Wednesday, indicating the volatile nature of the cryptocurrency.
Traders are weighing in on the cancellation of the technology upgrade that would had split the industry into a so called Fork.
Bitcoin prices rose to as much as $7,888 on Wednesday, before trading $6,100 on Sunday at 5pm.
Meanwhile, the UAE Central Bank governor Mubarak Rashid Al Mansouri has warned about the risk of dealing in digital currencies amid mounting risks including massive volatility, speculation and money laundering.