Abu Dhabi: The latest announcement from the US Federal Reserve about hiking interest rates for the first time in nine years may very well be great news for the US, as it signals faith that the economy has overcome the 2008 financial crisis.

However, in the UAE, analysts shrugged off the impact of the announcement on the country’s equity markets, saying that investor sentiment and overall trade was still very much tied to two main factors: oil prices and geopolitical tension.

Mohammad Yasin, managing director of the National Bank of Abu Dhabi’s Securities, said that the surge seen in the GCC markets on Thursday was merely a “relief rally” after the sell-off last week.

“I don’t think the fact that the US hiked rates by 25 basis points [bps] will change that volatility in our markets, and I think that volatility will probably continue to shadow our markets going on.

I don’t think that we have completely turned the corner on the bad week we had. Technically, we are heading in the right direction, but the volumes aren’t still enough to give us indication that the momentum has turned,” he told Gulf News by phone.

On Wednesday evening, the US Federal Reserve hiked interest rates by 25 basis points to between 0.25 per cent and 0.50 per cent, saying that it planned to hike rates further on a gradual basis over the next few years.

On Thursday, the GCC’s markets surged, with the Dubai Financial Market (DFM) index jumping 2.9 per cent, as Abu Dhabi’s bourse rose 2.05 per cent.

Yasin added that the Fed announcement could result in even lower trade values in the UAE’s equity markets as some investors may opt to invest in the US rather than the UAE.

“On the long-term, investors may pull out of the UAE, but for now, 25 bps aren’t really going to make a difference.

If you take the last six months of trade in the UAE and GCC markets and annualise that for next year, you’re going to get an indication of even lower trade values in 2016 compared to 2015. It could range anywhere from 15-25 per cent, even 30 per cent in some markets,” he said.

Challenges

Similarly, Tareq Qaqish, managing director of asset management Al Mal Capital, agreed, saying that an increase in the cost of funding will create challenges for businesses and investors.

Qaqish said that investors in the equity markets are still eyeing major announcements from regional governments on spending in order to change sentiment.

“In the UAE, the markets are down 20 per cent or more this year, so the US is definitely one of the markets that are attracting not only UAE investors but global investors, which is why we see more flow going into the US compared to emerging markets.

Most investors are concerned about currency issues in the emerging markets. Europe is also not growing at a fast pace, and China is slowing down, so the only good spot in the globe right now is the US,” he said.

Qaqish added that stabilisation in oil prices will help boost sentiment, especially as concerns mount over the impact of even more supply coming into the oil market once sanctions are lifted off Iran.

However, other analysts argued that the sell-off in the region lately makes valuations a lot more attractive for investors.

Attractive

Sebastien Henin, head of asset management at The National Investor, said that the US equity market was overvalued as it hasn’t seen as strong sell-offs as the region did this year, making emerging markets like the UAE’s attractive.

“We can still see a lot of positive points in the UAE. First off, the UAE is a diversified economy since oil accounts for only 30 per cent of the GDP. Valuations are becoming more attractive, and Iran is another interesting market. Why do you think oil prices are now at $35? It’s because the market is already pricing in Iran, so when the sanctions are lifted, it won’t be a major change,” he said.