A major overhang on equity markets worldwide, including India, has been removed with the UK and the European Union reaching a Brexit deal. However, most of the positive implications of the historic trade agreement seem to have been already factored in by investors.
On Thursday, investors cheered a potential Brexit trade deal between Britain and the EU that raised hopes the estranged allies would avoid a turbulent economic rupture on New Year’s Day. On Thursday, the BSE Sensex ended at 46,973.54, up 529.36 points or 1.14% and the Nifty closed at 13,749.25, up 148.15 points or 1.09%. Despite a harsh sell-off on Monday, the markets made the longest stretch of weekly gains at least since 2018.
Britain clinched a narrow Brexit trade deal with the EU late Thursday, just a week before it exits one of the world’s biggest trading blocs. The deal, agreed more than four years after Britain voted by a slim margin to leave the bloc, offers a way out of a chaotic finale to a divorce that has shaken the 70-year project to forge European unity from the ruins of World War Two.
In the last leg, Britain’s parliament will vote to approve a trade deal with the EU on 30 December, Prime Minister Boris Johnson said on Thursday following the announcement of the agreement with Brussels.
“Anticipation of fresh infusion of nearly $2.3 trillion in the economy from the US Federal Reserve and likely possibilities of the Brexit deal over the weekend has helped the market to bounce back from lower levels. For the next few days, traders need to be extra cautious, as the market has entered the zone of volatility,” said Shrikant Chouhan, executive vice president, equity technical research, Kotak Securities Ltd.
Investors are expected to keep an eye on the progress in covid-19 vaccination for further cues.
“Idiosyncratic geopolitical risks, like acceleration in US-China tensions or Brexit risk could diminish risk appetite significantly and hurt emerging markets equities. The former, in particular, could be relevant for Asia,” said Manishi Raychaudhuri, head of Asia Pacific equity research, BNP Paribas.
Global flows have been increasingly shifting to EMs, including India, over the past few months. Since the March lows, MSCI India has gained nearly 80% and MSCI EM jumped over 60% in dollar terms.
(Reuters contributed to the story)
