Illustration by Mathew Kurian
Illustration by Mathew Kurian
Illustration by Mathew Kurian
Illustration by Mathew Kurian

Should you hop on board the Santa rally?


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  • Arabic

This is traditionally the most wonderful time of the year for investors, as stock markets have a habit of rising strongly in the final weeks leading up to Christmas and the New Year.

This is called the Santa rally - a statistically proven phenomenon, as markets put on a festive front as the holiday season gets into swing.

Investors could do with some good cheer after a disappointing 2018, so will we end the year with a fireworks show?

You may not believe in Father Christmas but there is firm evidence for the Santa rally, as UK wealth manager Brewin Dolphin has discovered.

It crunched the data and discovered that the final two months of the year have outperformed the previous 10 months put together in 25 years out of 34, a convincing 73.5 per cent of the time.

Its figures are based on the FTSE 100 but the pattern can also be seen across global stock markets.

On average, the index grew 1.43 per cent in the final two months of the year, against just 0.41 per cent over the first 10 months.

Alisdair Ronald, senior investment manager at Brewin Dolphin, says the few exceptions came in the 1980s and in 2007, at the start of the financial crisis. “Otherwise our data suggests the Santa Rally is real.”

So what drives the Santa sleigh? Nobody knows for sure although Mr Ronald pins it on a combination of festive cheer, tax planning and annual bonuses. “You could make the case that the Santa rally is almost a self-fulfilling prophecy. Investors anticipate it and try to get in ahead of everyone else," he says.

Historically, the best couple of weeks tend to begin after December 10, he adds. “It is being pushed into earlier in the year as investors gear up for the annual phenomenon.”

Chris Beauchamp, chief market analyst at online trading platform IG, which has offices in Dubai, said there is another seasonal factor at play. “In the US, the pre-Thanksgiving bounce in equities is as traditional as the roast turkey people eat at this time."

Mr Beauchamp says US investors remain optimistic despite October’s share price sell-off. “Markets are sufficiently oversold to be primed for a bounce. How far it goes is another matter, but there are signs of a possible end to the selling and some will now be asking, is the bottom in?”

He says US indices have now completed another part of the ‘W’ formation that usually accompanies a big sell-off: “We have had the slump, a short-lived bounce, then another drop. Next comes the more sustainable rally, although of course nothing is certain.”

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Bull or bear: which route should investors take?

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Gordon Robertson, director of financial advisory group InvestMe Financial Services in Dubai, says that while the Santa rally is real, it faces strong headwinds as the US Federal Reserve continues its policy of lifting US interest rates.

Higher interest rates drive up both business and borrowing costs, which hits profits, while consumers have less in their pockets after paying more for mortgages and other credit. "As a result, we are probably witnessing the end of the 10-year bull market run.”

However, Mr Robertson warns against trying to time the market, whether than involves chasing a Santa rally, or fleeing a bear market.

Instead, he says you should stay invested for the long run, and keep charges to minimum with a low-cost exchange traded fund (ETF). He suggests the iShares Core Growth Allocation ETF (AOR) that invests in a balanced global portfolio of stocks and bonds.

Vijay Valecha, chief market analyst at Century Financial Brokers in Dubai, says 2018 has been a rollercoaster year for investors as stocks initially flew upwards due to US President Donald Trump's tax cuts, then crashed down on fears of a hawkish Fed and higher interest rates. “However, there is always a good probability of stocks rallying in the last month of the year.”

Mr Valecha expects US consumers to be spending freely this holiday season, with unemployment down to just 3.7 per cent and consumer confidence near an 18-year high. “Analysts expect a 5 per cent in holiday sales when compared to last year, which should bode well for equities.”

He names two ETFs that could help you benefit from rising consumer spending both in the short and long-term: the SPDR S&P Retail ETF (XRT) and Vanguard Consumer Discretionary ETF (VCR).

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Read more:

The issues behind the latest market sell-off are unlikely to disappear

Are these the warning signs of an approaching global recession?

Knowing when to sell a stock as key as knowing when to buy

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Konstantinos Anthis, head of research at forex broker ADSS in Dubai, warns that investors hoping for a Santa rally this year may be disappointed. “Plenty of people look to pick up bargains in December but our view is that stocks peaked earlier in the year and now may not be the best time to be long on equities, particularly US ones.”

Mr Anthis pins this on a combination of factors. “First, trade war uncertainty is keeping investors on the defensive, particularly with little hope of a meaningful outcome at the G-20 meeting.”

There is a growing concern that corporate earnings have peaked as the effects of Trump's fiscal stimulus starts to reduce, he adds. “Finally, the Fed's tightening schedule currently points towards another 0.25 per cent on rates in December, with two or three more hikes to follow in 2019, which will further slow growth.”

Mr Anthis is inclined to sit this holiday season out. "Your best opportunity may be to go short on certain sectors, notably US technology.”

He is also looking at shorting Italian banks in case of a full-blown confrontation with the EU over the country's budget, and UK banks as Parliament seems likely to reject the draft Brexit agreement.

Mr Anthis suggests that long-term ‘buy and hold’ investors should explore defensive stocks in the healthcare, consumer staples and utilities sectors, as the US nears the end of its growth cycle. “However, it's not quite there yet so this positioning might take some time to bear fruit.”

Investors have good reasons to wish it could be Christmas everyday but as global uncertainty and stock market volatility grows this could be the year that Santa does not pop down our chimneys.

Roll of honour

Who has won what so far in the West Asia Premiership season?

Western Clubs Champions League - Winners: Abu Dhabi Harlequins; Runners up: Bahrain

Dubai Rugby Sevens - Winners: Dubai Exiles; Runners up: Jebel Ali Dragons

West Asia Premiership - Winners: Jebel Ali Dragons; Runners up: Abu Dhabi Harlequins

UAE Premiership Cup - Winners: Abu Dhabi Harlequins; Runners up: Dubai Exiles

West Asia Cup - Winners: Bahrain; Runners up: Dubai Exiles

West Asia Trophy - Winners: Dubai Hurricanes; Runners up: DSC Eagles

Final West Asia Premiership standings - 1. Jebel Ali Dragons; 2. Abu Dhabi Harlequins; 3. Bahrain; 4. Dubai Exiles; 5. Dubai Hurricanes; 6. DSC Eagles; 7. Abu Dhabi Saracens

Fixture (UAE Premiership final) - Friday, April 13, Al Ain – Dubai Exiles v Abu Dhabi Harlequins

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SPEC%20SHEET%3A%20APPLE%20M3%20MACBOOK%20AIR%20(13%22)
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  • Premier League-standard football pitch
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  • NBA-spec basketball court with auditorium
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  • Specialist robotics and science laboratories
  • AR and VR-enabled learning centres
  • Disruption Lab and Research Centre for developing entrepreneurial skills
The 12

England

Arsenal, Chelsea, Liverpool, Manchester City, Manchester United, Tottenham Hotspur

Italy
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Spain
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Company Profile

Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million

Points tally

1. Australia 52; 2. New Zealand 44; 3. South Africa 36; 4. Sri Lanka 35; 5. UAE 27; 6. India 27; 7. England 26; 8. Singapore 8; 9. Malaysia 3

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World Cup warm up matches

May 24 Pakistan v Afghanistan, Bristol; Sri Lanka v South Africa, Cardiff

May 25 England v Australia, Southampton; India v New Zealand, The Oval

May 26 South Africa v West Indies, Bristol; Pakistan v Bangladesh, Cardiff

May 27 Australia v Sri Lanka, Southampton; England v Afghanistan, The Oval

May 28 West Indies v New Zealand, Bristol; Bangladesh v India, Cardiff

Washmen Profile

Date Started: May 2015

Founders: Rami Shaar and Jad Halaoui

Based: Dubai, UAE

Sector: Laundry

Employees: 170

Funding: about $8m

Funders: Addventure, B&Y Partners, Clara Ventures, Cedar Mundi Partners, Henkel Ventures

UAE currency: the story behind the money in your pockets

Hotel Silence
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Pushkin Press

COMPANY PROFILE
Name: Airev
Started: September 2023
Founder: Muhammad Khalid
Based: Abu Dhabi
Sector: Generative AI
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
 
The specs

Engine: 6.2-litre V8

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UPI facts

More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions