When Dow is strong, global equity markets follow suit: David Lennox, Fat Prophets

In a chat with ET Now, David Lennox, Fat Prophets, says once we see geopolitical events settling in Washington, administration will return to ensuring that planned reform programmes are implemented.

Edited excerpts:


Do you believe that the US markets will resume the rally that we have seen thus far into the year on the back of the kind of money flow that is coming into the markets there?

Yes. There is considerable cash still sitting on the sidelines and we did see the Dow let go quite a significant fall just a few days ago and that has been completely made up. So, when there is momentum to take the markets down, it is very quickly swallowed and that is on the back of a couple of things. We have seen a very good reporting season inside the US just completed, where earnings were generally across the board at 13%. You throw in the fact that now we are seeing a weaker US dollar across the course of 2017 and that probably does bode well for the US companies that are outside of the US and also those that are exporting into the world markets. You can see why we are seeing the Dow recover quite nicely over the course of the last few trading days. Usually when we see the Dow strong, it suggests that equity markets around the globe will also follow suit.

Earlier this year it appeared that US markets were going up because of the Trump trade and promises of the new Republican administration. Even though none of those promises have translated into absolute reality, markets are still holding on. Do you think global markets and especially US markets have moved beyond the Trump trade?

What has probably been causing the volatility over the last few weeks is the fact that markets have started worrying about delays at this stage in the implementation of a number of programmes that Donald Trump’s administration was to bring in. We do expect that once we see geopolitical events settling in Washington, we will see the administration returning to ensuring that those programmes are at best possible implemented. That brings up the question if that will in fact be passed by the congresses and we would have to wait to see if and how the policies are brought to market.

What is the call for the Indian market within Asia and as part of your allocation?
If India implements the infrastructure spend that Prime Minister Modi announced some months ago, there would be some improvement in the equity markets.