Abu Dhabi: The panic that gripped international investors on Friday after the UK voted to leave the European Union has had a ripple effect in the UAE on Sunday, with equity markets plunging in early trade.
The Dubai Financial Market (DFM) index fell the most in the GCC, ending the day 3.25 per cent lower to reach 3,258.17 after plunging as much as 4.68 per cent only a few minutes after trade began.
Share prices were also strongly in the red, led by Emaar, which accounted for 21 per cent of trade value and fell 4.69 per cent. Liquidity in the market improved, reaching Dh514 million — up from the lows below Dh200 million that were seen over the past few weeks.
In Abu Dhabi, while volatility wasn’t as high, there was also strong selling activity. The Abu Dhabi Securities Exchange (ADX) general index fell 1.85 per cent to end at 4,416.68 having reached a low of 4,339 in early trade.
Better than expected
Vijay Harpalani, fund manager at Al Mal Capital in Dubai, said that despite the drop in markets on Sunday, performance was actually better than expected.
He pointed out, though, that the reaction today doesn’t show the complete picture as foreign institutional investors may not have been present in the market considering it is a Sunday.
“There is likely to be short-term pressure due to higher geopolitical risk premium. As far as direct economic linkages between [the UAE and the UK], they are very limited. However, markets will continue to be volatile as Brexit increases uncertainty across emerging markets, UAE markets included,” he said.
Harpalani described the outlook for the rest of 2016 as “challenging” but expected to see selective opportunities in different sectors especially those that are domestically driven.
“Second and third quarter results will be closely watched for any signs of impact due to Brexit, mainly due to currency exposures. Brexit theme is likely to dominate investor sentiment for quite some time,” he said.
On DFM, Arabtec was down 5.71 per cent, Union Properties fell 4.73 per cent, Dubai Parks ended 3.25 per cent lower, Dubai Islamic Bank slid 1.95 per cent, and Dubai Investments declined 3.41 per cent.
GCC markets
Elsewhere in the GCC, Qatar’s QE index ended 1.24 per cent lower at 9,842.85, Kuwait’s benchmark index fell 1.11 per cent, Saudi’s Tadawul slid 1.1 per cent, and the Bahrain Bourse index fell 0.7 per cent.
The drop in GCC markets comes after European stocks plunged on Friday following the announcement that the UK had voted to leave the EU — a decision that sent the sterling to its lowest value since before 1985.
Germany’s DAX ended 6.82 per cent lower, France’s CAC 40 fell 8.04 per cent, Italy’s benchmark index slid 12.5 per cent, and Spain’s index went down 12.3 per cent.
In the US on Friday, the Dow Jones index opened nearly 500 points lower, and ended the day with a 610-point drop (or 3.39 per cent).
Dramatic impact
Analysts pointed out that Brexit was completely underpriced across global equity markets, with almost all investors expecting the Remain camp to win. The shock of the Leave camp actually winning will, thus, mean a dramatic impact on markets.
“Nobody can truly say for sure what this will ultimately mean to the global economy, but investors hate uncertainty and this outcome is nothing other than a complete shock to the world.
Does this impact the UAE economy? Directly, it shouldn’t. However, investor sentiment is going to turn drastically over this period towards complete risk aversion,” said Jameel Ahmad, vice president of market research at FXTM in a note.
He described risk appetite moving forward as “pretty much invisible,” adding that he expected global investors to “stay completely clear from stock markets” including emerging markets.
