Global equity markets are likely to stay volatile in 2022 due to rising concerns over inflation, strengthening crude oil prices and weak demand trends, according to Neelkanth Mishra, head of equity strategy-India, Credit Suisse.
Of late, inflation in the US has risen to a fresh 40-year high of 7.5 per cent in January. Likewise, British consumer prices increased at the fastest annual pace in nearly 30 years last month as inflation hit 5.5 per cent. India's retail inflation rate, as measured by the Consumer Price Index (CPI), surged to 6.01 per cent in January 2022, just above the RBI's upper tolerance band of 6 per cent. The price of Brent crude oil has also spiked nearly 19 per cent to $92.33 per barrel on a year-to-date (YTD) basis.
In an interaction with Udayan Mukherjee at the Business Today Budget Brainstorm event, the market watcher explained that BB bond yield in the US has been going up and the market has also started to price in some risk.
On Wall Street, Dow Jones Industrial Average index has retreated over 5 per cent to 34,312-mark on February 17 against 36,338 on December 31 last year. Back home, the benchmark BSE Sensex has declined 0.62 per cent to 57,892 during the same period.
"Primary targets for policymakers are inflation, not growth. You should expect a lot more choppiness in the global market. We may see some increment demand with the opening up of economies from Omicron. However, the underlying demand trend is weak. I don't think markets are fully pricing in the disruption in demand or concerns of what weak in demand can do to the financial system," said Mishra.
He is also worried about oil prices.
"I am worried that supply of oil may be a constraint. It can be either by geopolitics or by refusing to invest in new drills. There will be a lot of transfer from oil consumers to oil producers as oil prices go up. This may transfer the surplus to oil-producing nations. It will drag the overall growth. Lower oil prices are good for global growth and vice versa."
Mishra further said that all these concerns would become front and centre over the next few months.
"I expect a lot of choppiness in the global markets. That should worry us. The price-to-earnings of India is also hovering at close to its highest levels. The Indian equity market will follow the volatility in the global equity market due to stretched P/E multiple."
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