Stock Market

Global stocks in overbought zone despite anxiety

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ET Intelligence Group: The need to maximise returns amid the tough economic environment laced with lower corporate earnings visibility and accommodative stance by the central banks is prompting fund managers globally to focus aggressively on equities.

Indices such as Dow Jones Industrial Average, France’s CAC 40, and the MSCI World Index are trading at overbought levels according to Bloomberg Strength Indicator. Each of these indices has crossed the threshold of 70 on the strength indicator, which represents the overbought region reflecting caution for traders.

The market capitalisation of global equities rose by $10 trillion (nearly five times of India’s total market capitalisation) to $79 trillion since the beginning of 2019. The other major global indices such as Germany’s DAX, UK’s FTSE, India’s Nifty and the MSCI Emerging Market Index are just a whisker away from the overbought zone.

The DAX gained 4 per cent in June, the best June returns in 16 years.

It is poised for the first June of positive return since 2012. The markets are moving upwards with high trading volumes.

For instance, the average daily trading volume of the MSCI Asia Pacific Index rose by 58 per cent to 21 billion shares in the current year, just short of the record high level. Although the stocks are heading northwards, the earnings growth story is gradually turning gloomy.

Earnings downgrades by analysts continue to be higher than upgrades.

The Citigroup Earnings Revision Index has a negative reading for the last seven quarters.

Even valuations are looking high as the number of shares trading one standard deviation above their mean values is rising.




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Category: Stock Market


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