Reading the rally: It is still a see-saw stock market

Investors should be prepared for sudden shift in trends

The rally across emerging markets in the past eight weeks has reportedly been driven by hedge-fund activity. These entities often take extremely risky positions if they perceive changes in the stances of big central banks, or shifts in global macro variables. Foreign portfolio investors (FPIs) sold heavily between January and June. That was when it became apparent that the Fed and the European Central Bank would be tightening monetary policy, and the Ukraine war and China’s repeated lockdowns caused a slowdown and huge supply chain disruption. In July, FPIs started covering short positions as US inflation showed signs of moderation.