Risky assets rally as central banks pivot to easing

Wall Street’s enthusiasm for risky assets is on the rise, fueled by global policy-easing, Bloomberg reports. Emerging-market equities, stocks closely tied to the economic cycle, and speculative technology investments are experiencing renewed interest as central banks in China and Europe — as well as the US Federal Reserve — begin to cut rates after holding them at decade highs for years-.

The biggest winners: The S&P 500 is on track to reach its best first three quarters since 1997, with a 20% YTD gain. Meanwhile, BlackRock’s momentum ETF hit record highs, up nearly 30% for the year, while the Societe Generale index is “flashing hot,” reaching its highest level in over a year, with the gauge only reaching those levels 5% or so of the time.

More signs of bulls in the market: Hedges are underperforming, while Goldman Sachs basket of most-shorted stocks is up 17% year-to-date, the business information service said.

Still, stretched valuations pose risks, market watchers warn, with some stressing the need for “tactical caution.” Momentum indicators suggest the current euphoria may be difficult to sustain in the short term.

CLOSER TO HOME– DFM’s impressive growth faces headwinds from geopolitical risks, analysts warn: The Dubai Financial Market General Index surged 12% in 3Q 2024, reaching its highest level since 2014, driven by strong performances from companies like Emirates NBD Bank, Dubai Electricity and Water Authority, and Salik, Bloomberg reports. However, analysts warn that geopolitical risks and the challenge of finding appealing valuations may dampen future gains. In Abu Dhabi, the market advanced 5%, its best quarter since March 2022, while Saudi Arabia’s Tadawul All Share Index climbed about 6%, marking the best quarter of the year so far.

Despite favorable earnings and a tourism-driven economy bolstering the market, investor sentiment remains cautious. Tellimer’s emerging market equity strategist in Dubai notes that stocks will now be “more sensitive to any setbacks than further good news.” Reflecting this caution, HSBC strategists have shifted their stance on the UAE and Saudi Arabia from overweight to neutral, citing heightened geopolitical risk and low oil prices as potential headwinds. However, some analysts such as Daman Investment’s Divye Arora believe valuations remain attractive, with major Dubai companies offering appealing dividend yields exceeding 5% for 2025 amid declining bond yields.

MARKETS THIS MORNING-

Asian markets are having a rough start to the week, with Japan’s Nikkei down 4% in the wake of the ruling Liberal Democratic Party election on Friday. South Korea’s Kospi and the Kosdaq also fell around 0.5%. Meanwhile, Wall Street futures are flat going into the final day of 3Q 2024.

THE CLOSING BELL-

The DFM fell 0.1% on Friday on turnover of AED 282.6 mn. The index is up 11.4% YTD.

In the green: Dubai Financial Market (+3.8%), Takaful Emarat (+2.4%) and Dubai Islamic Ins. and Reins. (+2.3%).

In the red: Dubai Refreshment Company (-8.9%), Parkin (-1.5%) and Shuaa Capital (-1.5%).

Over on the ADX, the index closed down 0.5% on turnover of AED 1.5 bn. Meanwhile Nasdaq Dubai closed down 0.8%.