CHENNAI: New Year usually ushers in new hopes. But for markets and investors, the start of 2016 has been depressing to say the least. And the bad news is, the situation may worsen before stabilising.
On Wednesday, global stocks fell to a two-and-a-half-year low, Japan entered bear market, while European markets were teetering on the edge. A bear market is when indices decline by at least 20 per cent in a short span. Back home, the S&P BSE Sensex and Nifty 50 closed at a fresh 20-month low since May 16, 2014, the day the NDA government won a landslide mandate in the General Elections. The rupee breached the 68-mark during intraday trading against the dollar for the first time since September 4, 2013. Bloomberg, UBS and Barclays expect the rupee to touch 70 per dollar by March.
Triggering the upheaval are a slowing China and tumbling oil prices, which together dragged the MSCI All Country World Index for the 10th day in 13 trading sessions even as global equities lost $5 trillion in the most dismal start to any year on record. Investors pulled a staggering $735 billion from emerging markets in 2015 — the worst capital flight in at least 15 years, the Institute of International Finance revealed on Wednesday. The amount was almost seven times bigger than what was recorded in 2014, it added. Evidently, China was the biggest loser with $676 billion outflows, while India’s stood at $2 billion. US crude extended its drop from the lowest closing price in over 12 years after the International Energy Agency on Tuesday cautioned the world could “drown in oversupply”. WTI futures sank 7.55 per cent to $26.31 a barrel, while Brent lost 4.24 per cent having slipped below $28.
Gold climbed to the highest this week rising as much as 0.9 per cent. Citigroup Inc had raised its forecast for gold prices this year and said the metal’s role as a haven is back in vogue, while cutting the outlook for crude oil and base metals.
“It was a manic day on the bourses as global recession worries weighed in on investor sentiment. A host of global factors, including the US’ decision to wean away from accommodative monetary conditions, lower commodity prices and China’s rebalancing, left investors concerned about global growth outlook,” said Shreyash Devalkar, fund manager, Equities, BNP Paribas Mutual Fund.
Among other Asian markets, Shanghai ended 1.03 per cent down, Hong Kong’s Hang Seng dived 3.82 per cent, while Japan’s Nikkei ended 3.71 per cent lower. Asian stocks sank to the lowest level since September 2012. China shares listed in Hong Kong — otherwise known as H-shares — dropped to a level not seen since the depths of the global financial crisis in March 2009. The city’s dollar dropped to the weakest since 2007. US stocks too sank as the global rout deepened. Standard & Poor’s 500 Index dropped 2.12 per cent to 1,830.27 points in New York. The Dow Jones Industrial Average lost 406.21 points, or 2.35 per cent, to 15,609.81. The Nasdaq Composite Index and the Russell 2000 Index also dipped.
‘Volatility Due to Global Factors’
- Vinod Nair, head-fundamental research, Geojit BNP Paribas Financial Services Ltd
The market has collapsed 20 per cent from its record high of 9,119 amid instability in global markets and the continuous fall in commodities. Expectations of markets going downhill are likely to strengthen as the double whammy impact of oversupply in crude and concerns in the Chinese economy will dampen investors’ preference towards equities. Stabilisation in the currency market and oil prices will be the focus area during the near-term. For Indian investors, this isn’t the time to sell as the volatility is due to global factors and not domestic. Stabilisation will happen and this is the time you should look at long-term opportunity, not sell, hold on and accumulate with an outlook of around 12 months.