The
question which stands as a behemoth after Janet Yellen’s words
yesterday night is that – “Has Yellen signalled the start of the bear
markets in the emerging market indexes?”
Last night, Yellen, Fed Chairperson, was dovish when she stated the
economy was fine but they are still waiting for data point assessment
before raising interest rates.
The probability of a December rate hike has increased by many folds and
the big question is – Will the rally continue in the emerging markets.
They have run-up from 30 to 60 per cent from Jan to Feb, 2016 lows. One
heartening fact in the last 7 months is that the emerging markets are
shrugging off negative news like that of Brexit where market after a gap
down opening recovered sharply to make new highs. The emerging markets
are a classic tale of a liquidity fuelled rally.
The P.E. multiples of countries like India, Malaysia, Thailand and
Indonesia are high and above average of last five years which has forced
a research firm to term them as “Expensive Four”.
Therefore, in case of a Fed interest rate hike, a much needed correction
of price and time which is the call of the day is required in these
emerging markets.
Indian markets have opened gap-up trading at 8900. The dovish Fed has
opened gates for the Reserve Bank of India (RBI) to reduce interest
rates in the days to come.
Banking shares could outperform in the coming days. If this out
performance continues, the levels to watch out for in case of correction
will be 5700. If Nifty share price trades
above 8700, the bull-run will continue and the levels above 9000 which
is the recent high should not be ruled out and all time high of 9119
must be tested. Till then, the party continues and the liquidity flow
will continue to happen.
In the last 3 decades, we have never witnessed the FED increasing
interest rates exactly before the elections thus the Federal Reserve is
unlikely to raise interest rates on a short-term basis at its policy
meeting to be held in this week. The year 2016 is also the election year
for the United States of America as the 58thquadrennial
US Presidential Election is all prepared to happen, as they say, the
ammo is loaded while the shot is awaited in the month of November. The
whole world stands eager in wait to watch this event.
For more information on FED Rates please read “Looking past the FED Meet in to the Gold future”.
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