Is Yellen seeing Bear Market in Emerging Market Indexes?

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 58^thquadrennial 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”.