ABU DHABI: A plunge in oil prices coupled with a seven per cent drop in the Chinese stock market dragged the UAE’s equity indexes on Thursday, with the Dubai Financial Market (DFM) index falling as much as 4 per cent.
The DFM index ended the day 3.42 per cent lower to reach 2,966.43 after hitting a low of 2,947.69 shortly after noon. The Abu Dhabi Securities Exchange (ADX) general index, which is typically not as volatile as Dubai’s index, also took a dive of 3.16 per cent to reach 4,134.97.
Share prices were strongly in the red, with Emaar leading the losses in Dubai. The powerhouse accounted for 21 per cent of the total trade value in Dubai, with its share prices sliding 5.35 per cent.
The sell-off comes on the back of oil prices, which reached new lows of $33 a barrel — the lowest since 2004. Chinese stock markets were another trigger for the global drop in equities, as trade was suspended for the second time this week after the CSI300 index fell seven per cent shortly after opening on Thursday.
Tariq Qaqish, managing director of asset management at Al Mal Capital, said that geopolitical tension was adding to an already-negative sentiment among investors.
Tensions between Saudi Arabia (and its GCC allies) and Iran have been mounting over the past week, after protesters in Tehran set fire to Saudi Arabia’s embassy building on Saturday. The move came after Iran condemned Saudi’s execution of 47 people that included a prominent Shiite cleric.
Saudi Arabia responded by severing ties with Iran.
“I think the most important factor today is the oil drop and China is a related story to oil prices. I think the Chinese will continue to try to stimulate their economy, but it’s not easy. Some of the measurements they have taken to control the market crash so far did not work.
What we saw in China is a weakness of exports and a weakness in domestic demand, so it’s a dual effect … so there needs to be some measures taken other than just trying to control the capital markets,” Qaqish said.
He added that he did not expect valuations in UAE equities to prompt buying activity at this stage as they are overshadowed by macroeconomic factors.
“We’re going to be highly correlated to what’s happening in Iran, in oil, and in China. This year, in my opinion, will see a liquidity squeeze as the cost of funding will increase.
Qaqish pointed that higher interest rates spurred by a hike from the US Federal Reserve will also hurt liquidity. With the dirham being pegged to the US dollar, investors might look at other markets to allocate their assets.
Despite the fact that the UAE’s markets are oversold at this stage, Qaqish said there were no buyers due to negative sentiment and lower liquidity.
On DFM where almost all stocks fell, Arabtec dropped 4.17 per cent, Gulf Finance House ended 3.16 per cent lower, and Dubai Islamic Bank declined five per cent. Amlak and Air Arabia also fell 3.88 per cent and 2.26 per cent respectively.
Given the plunge in markets, there were only three gainers across ADX, starting with National Marine Dredging Co. which jumped 14.78 per cent, almost reaching the 15 per cent daily cap for an increase.
It was followed by Abu Dhabi Ship Building, up 11.94 per cent, and National Bank of Ras Al Khaimah, which was up 0.82 per cent.
Of the 33 stocks traded on DFM, 29 went down, two went up, and two remained unchanged. Of the 26 stocks traded on ADX, 20 declined, three advanced, and three remained flat.
