Investors’ focus this week — amid a record breaking global equities rally — should be on undervalued stocks, experts say.
The Dow Jones Industrial Average hit more than 25,000 level last week, gaining more than 2 per cent in the first week of January. The index rapidly gained more than 27 per cent last year. It took less than a year for the Dow to add a 5,000-point milestone, which is the fastest since the index was created in May 1896, according to agencies.
“Growth stocks have recently had a remarkable period of outperformance. Now may be a good time to reassess your allocations, and make sure your exposure to value stocks is where you want it to be in the context of a balanced portfolio,” Melda Mergen, Deputy Global Head of Equities at Columbia Threadneedle Investments said in her outlook.
Basically, growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued by the marketplace.
“The recent outperformance of growth stocks, combined with the current stage in the economic cycle, sets the stage for value stocks to outperform,” Mergen said.
The European indices also closed last week on a strong note.
The German DAX index closed 1.15 per cent higher at 13,319.64, while the CAC 40 Index closed 1 per cent higher at 5,470.75.
“We expect the risk sentiment to continue to improve which should help the DAX move higher and challenge the psychological resistance region around 13,500 during the course of the week,” said Devesh Mamtani, Head of Investments and Advisory, Century Financial Brokers.
Local equity indices also started the year on a strong note, and according to experts, focus will be on dividend yielding stocks.
“People will be focusing on dividend yields going forward with increased growth prospects, and relative undervaluation compared to global markets,” said Saleem Khokar, head of equities, First Abu Dhabi Bank Investment Management.
The Dubai index gained 2.9 per cent since the start of the year, after dismal performance in 2017. The index gained only 4 per cent compared to a 30 per cent increase in the MSCI Emerging market index.
The Abu Dhabi Securities Exchange General index also gained 3.59 per cent so far in the year, which was almost equal to the returns in 2017.
“The fundamental rationale for holding [gold’s] support level could be attributed to the global complacency over trajectory of US rates which might come faster than the market expectations. This could impede the ongoing rally in precious metals. Further the phenomenon of a soaring global equities market makes an investment in a safe haven asset unlikely,” Mamtani said. Gold witnessed a stellar performance in the first week of January and breached past the $1,300 an ounce mark.
Oil prices are coming off from their highest level in three years.
Brent crude neared the keenly watched $70 per barrel mark last week. On Friday, Brent closed 0.66 per cent lower at $67.62. West Texas Intermediate closed 0.49 per cent lower at $61.59 per barrel.
“Technically, there is a resistance extended by the 2015 high at $62.58, but the strong demand outlook is expected to boost prices further up once the resistance is broken,” Mamtani added.