Tech sell-off and inflation fears pressure global markets

Asian markets came under pressure and European markets traded lower on Tuesday after a technology sell-off dragged down US markets on Monday as fears about rising inflation grew.

Tokyo’s Nikkei closed 3.1 per cent lower on Tuesday while Hong Kong’s Hang Seng index dropped 2 per cent, extending its decline from its February 17 high this year, weighed down by the sell-off in the US markets. However, markets in China registered gains with the Shanghai composite index ending the day up 0.4 per cent and the Shenzhen composite rising 0.36 per cent.

In Europe, Germany’s Dax 30 fell 2.39 per cent while the UK’s FTSE 100 and the Euro Stoxx 50 were both down 2.21 per cent at 3.20pm UAE time. The CAC 40 index in Paris also dropped 2 per cent.

The fall in values across Asia and Europe mirrored those of US markets, with the tech-heavy Nasdaq closing 2.55 per cent lower on Monday and the S&P500 falling more than 1 per cent as shares in Facebook, Alphabet, Apple and Amazon slumped. The Dow Jones closed 0.1 per cent lower on Monday.

The sell-off comes amid fears that pandemic-driven stimulus measures could drive up inflation and force central banks to raise interest rates.

“Inflation is what keeps investors up at night. Rising worries of seeing an overshoot in US inflation sent tech stocks lower at the beginning of this week,” Ipek Ozkardeskaya, senior analyst at Swissquote, said.

“And the latest Chinese figures didn’t help soothing investors’ nerves.”

O n Tuesday, China said the producer price index, a gauge of industrial profitability, rose 6.8 per cent annually in April. Strong domestic consumption, soaring exports and rising factory gate prices are all indicators that the world's second largest economy is seeing growth pick up during the second quarter, according to a note by the Bank of Singapore. The lender expects China's gross domestic product to expand sharply by 8.7 per cent in 2021.

Although producer prices have risen, analysts believe it is unlikely these costs will be passed onto consumers. April’s consumer price index only rose by 0.9 per cent.

“The rising factory-gate prices haven’t translated into higher end-product inflation in China and this week’s data could confirm the same subdued reaction in US consumer prices, as well. That suspense on the consumer price end is killing investors,” Ms Ozkardeskaya said .

However, raw material costs, including steel and copper – essential in manufacturing supply chains – have soared over the past month, testing policy makers’ views that inflation is temporary and is a result of resurging economic activity.

Investors will be closely watching how central banks and other officials respond over the next few days.

“Traders will be gauging the stance of several important Fed officials who are slated to speak later today. The focus will be on what these officials make out of the recent US [employment] data and their views of the US's current monetary policy and economic recovery,” Naeem Aslam, chief market analyst at Avatrade, said.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Moral education needed in a 'rapidly changing world'

Moral education lessons for young people is needed in a rapidly changing world, the head of the programme said.

Alanood Al Kaabi, head of programmes at the Education Affairs Office of the Crown Price Court - Abu Dhabi, said: "The Crown Price Court is fully behind this initiative and have already seen the curriculum succeed in empowering young people and providing them with the necessary tools to succeed in building the future of the nation at all levels.

"Moral education touches on every aspect and subject that children engage in.

"It is not just limited to science or maths but it is involved in all subjects and it is helping children to adapt to integral moral practises.

"The moral education programme has been designed to develop children holistically in a world being rapidly transformed by technology and globalisation."