Business as usual resumes for markets

The world’s financial markets can heave a sigh of relief, as one big uncertainty is out of the way. With Scotland not opting for independence, the UK could see foreign capital, which had flown out as fears of a split increased over the past couple of weeks, return. Economists do not expect the referendum result to impact economic data flow. The currency market is expected to return to where it was before the political turmoil started a few weeks ago.

Daragh Maher, a currency strategist at HSBC, says, “When we look back to where sterling was trading against the dollar before politics became a worry, it was trading $1.6620 or so. So one could argue that is where we should head back to. We don’t think it should go that far as we have also seen a generalised dollar rally over the past couple of weeks, so we suspect that 1.6500 is an appropriate level.”

US stocks were rising in early trading on Friday, setting record highs on the Dow and S&P 500 after Scotland's vote to remain in the UK. The Dow Jones industrial average was up 45.92 points, or 0.27 per cent, at 17,311.91. The Standard & Poor's 500 Index was up 3.14 points, or 0.16 per cent, at 2,014.50. The Nasdaq Composite Index was up 2.82 points, or 0.06 per cent, at 4,596.24. MSCI’s global share index edge up 0.01 per cent and was on track for a fifth weekly gain in the last six, as were major US indexes.

On Friday, the 50-share Nifty also rose 0.08 per cent to 8,121.45. But the benchmark BSE Sensex fell 0.08 per cent, or 21.79 points, to end at 27,090.42, notching up a weekly gain of 0.11 percent.

With the dollar strengthening against the most developed currencies such as the euro and pound, there might be some action in the currency markets. “I don’t think the event (Scottish vote) will have too much bearing on Indian equities. The impact may be relevant in currency markets,” says Jitendra Sriram, director and head of research, global research, at HSBC Securities and Capital Markets.

Hours after the result of the referendum came out, economists and strategists across the globe rushed to say the markets had not factored in a ‘Yes’ anyway.

For India, the US Federal Reserve’s move on interest rates was more relevant than Scottish independence. “By itself, the Scottish verdict will not have any impact on Indian equities,” said Vinay Khattar, associate director and head of research at Edel Invest Research. For now, relatively stable emerging markets such as India and the Philippines are better placed to survive the turmoil in the currency markets in case the US Fed raises rates in June 2015.

Andrew Colquhoun, senior director (sovereigns) at Fitch, says: “Mongolia and Indonesia are likely to be more vulnerable in an interest-rate shock scenario; while India, the Philippines and Malaysia are better positioned.”