The long-awaited broadening in the 2023 equity advance is bringing gains to corners of the market even unabashed bulls may view uneasily.
Boats seaworthy and otherwise are being lifted by the rising tide in stocks, itself part of a cross-asset “everything rally” last week that was the biggest in three years.
Gains spread, with banks and commodity producers in the ascendant. And there were flimsier propositions: Meme stocks had their best week since January, while unprofitable tech companies rose 11 per cent.
“I don’t know the staying power of the ‘junk rally’, because it’s more sentiment driven – it’s not fundamental driven,” said Abby Yoder, US equity strategist at JP Morgan Private Bank. “Regardless of whether you’re in the camp of us going into a recession or a camp of a soft landing, the reality is that growth is probably slowing.”
For bulls who have been calling for the unseating of the artificial-intelligence oligarchy that has ruled markets since December, it s a case of be careful what you wish for, at least going by the cyclical playbook that has prevailed since the pandemic.
The market gets a lift, sceptics buy in – then speculative fever breaks out in time for gains to fizzle.
Whether the pattern is repeating, this was a week of nearly unprecedented buoyancy across asset classes.
Among five major exchange-traded funds tracking stocks, Treasuries, corporate bonds and commodities, each was up more than 1.7 per cent. In data going back almost a decade, only once was there a bigger concerted rally: March 2020.
And while that particular echo may stoke bulls, a lot has changed between now and then in terms of policy and valuation.
Back when the pandemic was raging, the Federal Reserve rushed to lower interest rates and the government doled out trillions of stimulus checks to Americans. The S&P 500 was valued at roughly 14 times earnings, while 10-year Treasury yield stood below 1 per cent.
Now, the central bank is in the midst of the most aggressive monetary tightening in decades, the 10-year rate has risen to 3.8 per cent, and the S&P 500’s price-earnings ratio hovers near 20.
On the other hand, the prospect of a soft landing has improved, with inflation cooling and economic growth holding up. And the Fed may stop increasing interest rates after another later this month.
Weakening prices, in particular, are driving the synchronised gains across assets, according to Michael Rosen, chief investment officer at Angeles Investments.
“Inflation is the scourge of investors: It harms bonds, of course, but also equities, as it erodes profit margins and destroys wealth over time for everyone,” he said. “We are not out of the woods, although good news is good news, and markets are reflecting that.”
The possible end to monetary tightening jump-started a broad risk-on move in the currency market, with traders seeking higher returns in everything from the euro to Mexico peso.
The US dollar, a long-favoured haven, sank the most since November, losing more than 2 per cent of its value over five sessions.
In stocks, fringe corners are springing back to life.
A Goldman Sachs Group basket of unprofitable technology companies had its best week since January. Newly-minted shares jumped as the Renaissance IPO ETF climbed almost 7 per cent on the week.
Retail investors, who were burnt by 2022’s bear market, are staging a comeback. The Solactive Roundhill Meme Stock Index, tracking the crowd’s favourite shares, rallied about 8 per cent this week, led by crypto-related stocks.
Day traders scooped up a net $2.8 billion of shares in the week through Tuesday, an amount that’s way above its 12-month average, according to JP Morgan Chase estimates derived from public data on exchanges.
Elsewhere, money managers are cutting their short positions while moving cash to stocks.
I don’t know the staying power of the ‘junk rally,’ because it’s more sentiment driven – it’s not fundamental driven
Abby Yoder,
US equity strategist, JPMorgan Private Bank
An index tracking investors’ equity positioning has spiked from depressed levels at the start of the year, reaching readings higher than 68 per cent of the time since 2010, according to data from Deutsche Bank.
As much as the buying urge has propelled stocks, it may sow the seed for troubles.
If there is a lesson to be learnt from 2023’s rally, it is that paranoia is the best thing bulls can hope for because that sets the stage for a market rebound.
With gaming spirits raging back, it’s a contrarian sign to be cautious, said Jake Schurmeier, portfolio manager at Harbor Capital Advisors.
“Sentiment has clearly swung towards the positive extreme,” he said. “It certainly caught me off guard. I think 1999-2000 may be a better parallel in terms of how it ends.”
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if you go
The flights
Emirates have direct flights from Dubai to Glasgow from Dh3,115. Alternatively, if you want to see a bit of Edinburgh first, then you can fly there direct with Etihad from Abu Dhabi.
The hotel
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Located in the heart of Mackintosh's Glasgow, the Dakota Deluxe is perhaps the most refined hotel anywhere in the city. Doubles from Dh850
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Events and tours
There are various Mackintosh specific events throughout 2018 – for more details and to see a map of his surviving designs see glasgowmackintosh.com
For walking tours focussing on the Glasgow Style, see the website of the Glasgow School of Art.
More information
For ideas on planning a trip to Scotland, visit www.visitscotland.com
Specs
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More on Quran memorisation:
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
More from Neighbourhood Watch
Which honey takes your fancy?
Al Ghaf Honey
The Al Ghaf tree is a local desert tree which bears the harsh summers with drought and high temperatures. From the rich flowers, bees that pollinate this tree can produce delicious red colour honey in June and July each year
Sidr Honey
The Sidr tree is an evergreen tree with long and strong forked branches. The blossom from this tree is called Yabyab, which provides rich food for bees to produce honey in October and November. This honey is the most expensive, but tastiest
Samar Honey
The Samar tree trunk, leaves and blossom contains Barm which is the secret of healing. You can enjoy the best types of honey from this tree every year in May and June. It is an historical witness to the life of the Emirati nation which represents the harsh desert and mountain environments
Children who witnessed blood bath want to help others
Aged just 11, Khulood Al Najjar’s daughter, Nora, bravely attempted to fight off Philip Spence. Her finger was injured when she put her hand in between the claw hammer and her mother’s head.
As a vital witness, she was forced to relive the ordeal by police who needed to identify the attacker and ensure he was found guilty.
Now aged 16, Nora has decided she wants to dedicate her career to helping other victims of crime.
“It was very horrible for her. She saw her mum, dying, just next to her eyes. But now she just wants to go forward,” said Khulood, speaking about how her eldest daughter was dealing with the trauma of the incident five years ago. “She is saying, 'mama, I want to be a lawyer, I want to help people achieve justice'.”
Khulood’s youngest daughter, Fatima, was seven at the time of the attack and attempted to help paramedics responding to the incident.
“Now she wants to be a maxillofacial doctor,” Khulood said. “She said to me ‘it is because a maxillofacial doctor returned your face, mama’. Now she wants to help people see themselves in the mirror again.”
Khulood’s son, Saeed, was nine in 2014 and slept through the attack. While he did not witness the trauma, this made it more difficult for him to understand what had happened. He has ambitions to become an engineer.
Western Region Asia Cup T20 Qualifier
Sun Feb 23 – Thu Feb 27, Al Amerat, Oman
The two finalists advance to the Asia qualifier in Malaysia in August
Group A
Bahrain, Maldives, Oman, Qatar
Group B
UAE, Iran, Kuwait, Saudi Arabia
AIDA%20RETURNS
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RESULTS
Cagliari 5-2 Fiorentina
Udinese 0-0 SPAL
Sampdoria 0-0 Atalanta
Lazio 4-2 Lecce
Parma 2-0 Roma
Juventus 1-0 AC Milan
