DFM sees biggest single-day drop for the year, ADX closes low as investors turn extra cautious on Israel conflict - can higher oil price provide a boost?
UAE blue-chip stocks, especially real estate, feel brunt of investors cutting exposure
Dubai: Not surprisingly, investors on DFM and ADX have reacted with extreme caution to the situation in Israel and what it portends for the Middle East, with the Dubai stock market dipping 2.7 per cent and the latter by 1.2 per cent by 12.30pm.
At close, the DFM was down 2.6 per cent, its largest single-day drop for the year, eclipsing the 1.49 per cent drop seen on March 14. The ADX closed 1.29 per cent down.
Investors have had the whole of the weekend to come up with their choices, but it does seem that there is a touch of the wait-and-watch sentiment. They would also be pricing in oil’s rise following the weekend’s turmoil in the region, with futures up 3.73 per cent to $85.88 a barrel.
Emaar, DIB and Emirates NBD were among the stocks that showed declines on DFM, based on the most active by value factor. On ADX, blue-chips Aldar, IHC and Alpha Dhabi shed value, as did Multiply and Q Holding.
Analysts and investors are unanimous that this week will prove one hard slog for Gulf markets, with tremors synced to the developing situation in Israel and Gaza. The Saudi stock market, which was open Sunday, immediately felt it, closing 1.1 per cent down for the day.
What investors should be looking for
Identifying a ‘floor level’ to how much the stock markets will decline during this phase should focus their minds. “Oil prices will set the mood and marker for sentiments,” said an analyst. “Market will be tracking all the energy focused companies short-term.
“As was seen today, the blue-chip real estate stocks on DFM and ADX have come under pressure. That was to be expected.”
Until now, the DFM’s largest one-day drop during the period was 1.49% on March 14 and FTSE ADX’s was 2.63% on January 27.
Q3-2023 results
Some analysts are saying that with the Q3 results starting to come through from next week, it was likely that investors will take a watch attitude. “But then the Israel situation happened out of nowhere, and it would take a good set of results from the big publicly listed firms to get the bounce back.”
If not UAE equities, what?
Investors with an international exposure should also be reading the head/tail winds.
"The near-term outlook for both bonds and equities (globally) remains tough,” said Gary Dugan, Chief Investment Officer at DIFC-based Dalma Capital.
“Sell-downs in asset markets provide buying opportunities. We view the sell-off in high quality bonds as a long-term buying opportunity.
“The US 10-year government bond yields have risen 1.6 percentage points in the last 5 months to 4.8 per cent - the highest level since 2007.
“We have our concerns about inflation, but we believe that bond yields are now above the likely long-term inflation rate. Within equity markets we would be more patient and wait for a further 5-10 per cent selloff before buying.
“On the dip, we would look to buy European luxury goods names (for an eventual recovery in Chinese demand), the Indian equity market (for the long-term growth story) and US tech for the AI revolution."