With central banks around the globe continuing to take accommodating stances, the rally in global markets continued on Tuesday. The Dow Jones Industrial Average opened at a new high of 15,010 while the S&P was trading at its lifetime high of 1,621 at 7.30 IST. European indices too surged to lifetime highs; the FTSE was trading at 6,561 its all-time high while DAX was up more than 1% at 8,194 after hitting its highest level during the day. In Asia, the Nikkei gained nearly 400 points or 3.55% on Tuesday, and closed at a five-and-a-half-year high. The Hang Seng was up 0.58% or 132 points and the Jakarta Composite rose 1.09% or 51 points while Malaysias KLSE Composite gained 1.41%.
Market watchers are surprised at the resilience in the markets despite the slight rise in commodity prices which had softened significantly last month. Said Manishi Raychaudhuri, MD and head of research at BNP Paribas Securities: The strength of the rally is puzzling because corporate results have been mediocre, theres little happening on the policy front and oil prices are back at $105 per barrel. This rally seems to be almost entirely driven by global liquidity and, therefore, it is difficult to take a call on its longevity.
Said Nandan Chakravarty, MD, institutional research at Axis Capital: This is the first time that gold and crude oil have been moving in tandem, both ways, which is very unusual. Foreign funds are waiting for an early resolution to the political impasse in India to invest their ever-burgeoning holdings of US treasuries into equity markets in the US and attractive emerging economies like India.
Indeed, foreign institutional investors (FIIs) continued to shop for Indian stocks they bought $121 million worth of equities on Tuesday and have invested more than $12 billion so far this year. According to Bloomberg, FIIs bought a net $802 million worth of equities last week, the most in 12 weeks. Thats despite the fact that corporate earnings have turned out to be by and large disappointing with several heavyweights, including Infosys and Bharti Airtel missing estimates.
Moreover, as analysts point out, PSU banks, infrastructure and construction companies are yet to announce their numbers for the March, 2013 quarter.
India now trades at just under 14 times one-year forward earnings, cheaper than most Asian markets.
The abundance of global liquidity is driving up markets worldwide. Some of the global indices hit their highest level in almost five years on Tuesday, a day after the S&P 500 closed at another record high, on continued optimism over last weeks strong US jobs report.
The Reserve Bank of Australia was the latest to join the list of central banks to cut interest rates to revive economic growth. While Indias Reserve Bank of India (RBI) lowered rates last week, ECB president Mario Draghi also announced a rate cut last week while saying that further were possible. The US Federal Reserve has also said it will keep buying $85 billion of bonds a month to stimulate the US economy.
Dow surges to RECORD level
Stocks are edging higher in early trading on Wall Street, putting the Dow Jones industrial average back above 15,000. The Dow was up 42 points at 15,011 shortly after the opening bell Tuesday, an increase of 0.3%. The Dow first crossed above 15,000 on Friday after the government reported a strong pickup in hiring last month. The Standard & Poors 500 Index was up 3.01 points, or 0.19%, at 1,620.51. The Nasdaq Composite Index was up 3.37 points, or 0.10%, at 3,396.34.