Why UAE, Saudi stock investors should not panic on US recession, tech meltdown fears
UAE markets bounce back after Monday's selloff, with Asia already in the green
Dubai: Even as Middle East tensions keep flaring, this is not the time for UAE and Gulf investors to hit any panic buttons and go in for an ‘excessive’ liquidation of their stock holdings.
Also, they should not be looking too much at what’s happening with US stocks and repeat the same in local and regional markets, whether that’s the DFM, ADX or the Tadawul, say market watchers. Because unlike on the Dow and the Nifty, UAE stock markets are yet to see a heavy tech sector presence – for now, that’s a good thing, analysts add.
“It’s worries over a possible recession and a major correction of tech stocks that’s behind the steep declines in the US markets,” said an analyst. “Those fears may not go away soon, but there is no reason why UAE investors should be too bothered about it.
“UAE stock market volumes have limited exposure to tech, and it’s solid sectors and stocks that will keep driving trends. Investors should stay on, whatever the noise outside.”
Early gains on Tuesday
The DFM and ADX clawed back some gains early today (August 6), after sliding 4.51 per cent and 3.41 per cent yesterday. Just about every stock got hit by investors turning jittery yesterday, with the likes of Emaar and Drake and Scull slipping by 8 per cent. Aldar dropped 7.25 per cent and the Multiply shares by 9.61 per cent.
Currently, the DFM is up 1.8 per cent and ADX by 1.5 per cent.
Much the same was playing on the Saudi Tadawul too since Sunday, and across other Gulf markets. Here too, things could be in for a change today.
The market is currently selling indiscriminately – Most markets, sectors, and asset classes are going down. Except bonds
Some of the other stocks that dropped needed corrections after sustained gains in recent weeks.
Most of the leading Asian stock markets are currently in the green, including Japan’s Nikkei, which had been under tremendous pressure yesterday. India's Sensex too is having a good run after enduring two successive days of trading turmoil.
Let's go ‘defensive’
In times of extreme uncertainly – and the present qualifies as one – investors should be thinking ‘defensive’, that is stick to stocks and sectors that will provide them solid returns. With dividends to sweeten up further.
"Sectors such as utilities, telecom, and healthcare typically provide a buffer due to their steady demand regardless of economic conditions,” said Tony Hallside, CEO of STP Partners, a specialist brokerage based out of DIFC.
“In the UAE, companies like DEWA and e& have historically provided consistent dividend yields, making them attractive to risk-averse investors. However, it's important for investors to also evaluate the sustainability of the dividends and the overall health of a company.”
While the geopolitical situation might induce some nervousness, the dividend payouts expected from top Gulf companies could serve as a stabilizing factor, mitigating the urge to liquidate holdings hastily
Watch out for upcoming H1-24 results
This week will see more first-half results out, including those from Abu Dhabi heavyweight IHC and Dubai's Emaar. Anything in line with analyst expectations should spark more activity, and offer investors and markets some indication of what could be store for the second-half.
Even when the US Fed finally cuts interest rates, UAE’s banks have enough lending demand to call on to sustain themselves through the rest of the year and beyond. And investors know that well enough.
The US central bank needs to take action now, and bring down rates from a more than two-decade high. Or there could be legitimate and far-reaching risks of a hard landing
Try bonds too
Amer Halawi, Head of Research at Al Ramz Corp., reckons investors should be looking at bonds too, just to diversify their holdings.
“Bonds make sense while any other trading or investing activity should be kept until we have better visibility,” said Halawi. “A generous dividend yield of 5 per cent or even 10 per cent can be lost in a few hours in a (stock) market like this one.
“Patience and bonds are the real safe havens today.”