MC Interview | Sell-off could continue in short to medium term, 2022 will be a dynamic year: Peter McGuire of XM Australia

Market Outlook

Crude oil prices rising to $ 100 or $ 110 a barrel is certainly not a good point for emerging markets like India, and compared to China, the world’s second-largest economy, India would feel the pressure more, Peter McGuire, CEO of XM Australia, told Moneycontrol in an interview.

“Massive upside is seen in crude prices in the last 24-48 hours, knocking on the door at $ 100 a barrel. I think mood as far as sanctions being imposed, or certainly talking about by numerous European nations, towards Russia is going to be more interesting. Overall, nervousness in US equities and global equities continues, and strong US dollar which is at 96.2 could move up further,” McGuire said on February 22.

With the escalation of Ukraine-Russia tensions especially after Russian President Vladimir Putin ordered forces into two breakaway regions of eastern Ukraine, the global markets caught into a bear trap. Indian equities themselves cracked more than 2 percent intraday, though they recovered sharply later to close with seven-tenth of a percent loss on February 22.

Oil prices rose further on Tuesday, hitting $ 99.50 a barrel on the Brent crude futures amid the fear of sanctions being imposed on Russia by European nations. It “is not a good sign for emerging markets including India, says McGuire. “Crude going up at $ 100 a barrel or $ 110 a barrel is certainly not a good point for emerging markets, certainly not a country like India, and comparing with China, the world’s second-largest economy, India feels the pressure more,” he observed.

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“Remember, Russia is the third-largest oil producer and second-largest natural gas producer in the world. So putting sanctions on Russia, especially in winter is not a good sign,” he pointed out.

McGuire is not seeing the FII flow trend improving given the nervousness across a lot of markets. “No, I don’t. I think consensus is that there is going to be nervousness across a lot of markets. I think it is a trepidation from resilient investors. They had a one-way rally for the last one-and-half years and everyone’s made money. For the month, it is just a bit of nervousness sweeping pretty much the world.”

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FIIs have been net sellers for the fifth consecutive month now. They have net sold more than Rs 1.65 lakh crore since October 2021 or especially since the market hitting record highs, given the expectations of faster tightening by the Federal Reserve in 2022 to fight inflation. Earlier, high valuations caused selling pressure and then it was by rising oil prices.

In the last two months, Brent crude futures spiked 40 percent to near $ 100 a barrel. India is a net oil importer, so any spike in oil prices increases the spending from India to import oil.

McGuire feels a sell-off in equities could continue in the short to medium term. “The storyline is that there is nervousness to investors, and certainly to nations. forty-eight percent of Chinese demand, and the European demand for natural gas come from Russia, so it is not a good sign to put a sanction on Russia, especially in winter.”

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Commenting on the year 2022, he says, “Russia crisis on one side and expectations of seven rate hikes by Fed in 2022, certainly factored in high gold prices and crude prices across the globe. So 2022 is going to be a very interesting year, volatile year and dynamic year from the trading perspective.”

Is the market looking attractive to foreign investors, after a big crash? “I think that might be more attractive. Overall demand, the brilliant and credibly young population and India rebuilding the infrastructure, so the storyline is very much blue sky for India and its positions, so well for this decade end, really next decade onwards as long as commodity prices don’t go up,” says McGuire.

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