Abu Dhabi: Investors in the UAE’s equity markets waiting for the so-called “January effect” may have to hold out as challenging macroeconomic factors continue to dampen trade in the country’s markets.

The “January effect” is a hypothesis that markets see increased buying activity during the month following the drop in prices in December when investors sell shares for year-end tax harvesting.

“Look at the news flow in early 2016. We had this sell-off in China’s equity markets, falling oil prices, and the geopolitical tension in the region, so we shouldn’t expect any rallying in this environment. All lights are red,” said Sebastien Henin, head of asset management at The National Investor.

On Sunday, the UAE’s benchmark indexes were almost flat, with liquidity plunging even further as shares worth Dh176.4 million were traded on the Dubai Financial Market (DFM). The figure not only marks a significant drop from liquidity in 2014, but is also lower than the average values between Dh300 million and Dh400 million seen over the past few weeks.

The DFM index slid 0.09 per cent to reach 2,963.79, as the index traded between ranges of just 27 points throughout the day.

The performance on Sunday puts the index in the red for the sixth consecutive trade session. It also brings the index’s total decline since the beginning of this year to six per cent — more than half of which was accounted for on Thursday. The 3.4 per cent dive on Thursday was triggered by a seven per cent plunge in China’s CSI 300 index and oil prices reaching new lows below $33.

Meanwhile, the Abu Dhabi Securities Exchange (ADX) general index on Sunday edged up 0.16 per cent to reach 4,141.49.

Henin attributed the flat movement to a lack of catalysts especially after Asian markets saw some rebound on Friday.

“There is a lack of interest in the markets. Despite the fact that there was no escalation in tension between Saudi and Iran, and the fact that Asian markets bounced back on Friday, these are all short-term factors.

There is still some pressure across Asian equity markets, and we still don’t know if oil prices will go further down. We don’t know how things on the geopolitical front will move in the next few weeks, so we still don’t know [the direction],” he said.

Henin added that he expected high volatility across the markets in the coming weeks and further selling pressure.

With earnings season coming up and expectations for slower growth, Henin said that investors have already started factoring in weaker results.

“While earnings might have an impact [on markets], I’m not sure it will be the number one factor affecting listed companies. One year after the beginning of the fall of oil prices, investors are already expecting some pressure on corporates.

These days, I think more weight will be on the international agenda, and by that, I mean oil prices, the volatility across emerging markets, and geopolitical tension,” he said.

He was referring to tension particularly between Saudi Arabia and Iran. Last week, the kingdom severed ties with Iran after protestors in Tehran set fire to Saudi Arabia’s embassy.

Meanwhile, in a statement from Al Ramz Capital, Talal Touqan, head of research and advisory, said he expected the DFM index to witness considerable support in the 2,930 – 2,850 zone.

“We expect some sort of technical recovery this week for local markets, although such moves may probably be short-lived due to agitated levels of confidence as well as due to uncertainties revolving geopolitical aspects,” he said.

In Dubai, most stocks ended the day with less than a one per cent change. Arabtec was up 0.87 per cent, as Emaar slid 0.19 per cent, Gulf Finance House edged down 0.2 per cent, Amlak dropped 0.81 per cent, and DFM shares were flat.

National Central Cooling (Tabreed) ended 2.75 per cent lower.

On ADX, Ras Al Khaimah Cement Company topped the gainers’ list with an 8.43 per cent increase, followed by Sudatel Telecom Group with four per cent, RAK Properties with 3.85 per cent, First Gulf Bank with 2.13 per cent, and Dana Gas with 2.04 per cent.

Of the 34 stocks traded on DFM, 15 went down, 14 went up, and five remained unchanged. Of the 21 stocks traded on ADX, nine declined, six advanced, and six remained flat.