Global Market Watch : A Mixed Bag

A rise in bond yields was being perceived as an indicator of expected rise in inflation in the global economy..

The global markets remained mixed during the fortnight. Rise in US’ bond yields and concerns regarding further rise pressured global equity markets. Bond yields are generally considered to be inversely proportional to equity returns and hence, usually, it is seen that when bond yields increase, equity markets tend to underperform. The bond market factors a possible rise in inflation. If the cost of borrowing rises, the value of companies tends to fall according to the discounted cash flow (DCF) method. Further, equity values fall, which is perceived as a negative element for equity markets.

Hence, a rise in bond yields was being perceived as an indicator of expected rise in inflation in the global economy. As a result of the selling pressure thus seen in the markets, US’ indices such as NASDAQ, S & P 500 and DJIA tumbled by 4.95 per cent, 2.91 per cent and 0.13 per cent, respectively. In spite of the US Senate passing a USD 1.9 trillion stimulus bill, which would boost investor sentiments, prominent indices in Asia remained subdued. Shanghai Composite index dipped by 5.91 per cent while SZSE Component index plunged by 9.01 per cent during the fortnight. The SZSE Component index is an index of 500 stocks that are traded at the Shenzhen Stock Exchange. 

Other Asian indices such as Hang Seng and Nikkei also tumbled by 6.83 per cent and 4.68 per cent, respectively. Concerns regarding high valuation of technology stocks in China and warning from top Chinese financial regulators regarding the risks of asset bubbles forming in domestic real estate prices and global financial markets as well the Chinese leaders indicating that they could renew their focus on curbing debt levels since the economy is in a better condition damaged overall investor sentiments. Market experts believe that Singapore stocks comparatively look more attractive because of their relatively better valuations and high dividend yields.

With the investors following a proper example of ‘value investing’, Singapore’s Straits Times index jumped by 6.26 per cent during the fortnight. In the European markets, indices such as FTSE 100, DAX and CAC 40 gained by 1.41 per cent, 3.72 per cent and 2.13 per cent, respectively, on improving economic conditions. S & P/TSX Composite index which is the benchmark Canadian index rose by mere 0.70 per cent during the fortnight whereas Brazil’s BOVESPA index declined by 4 per cent. The S & P/ASX 200 which is considered the benchmark for Australian equity performance ended the previous fortnight in the negative territory, down by 1.46 per cent.