Investors to pocket more gains as economies gradually reopen

Dubai: UAE investors hope to pocket more gains this week as momentum continued to build in both Dubai and Abu Dhabi markets after a third-straight weekly gain was recorded last week.

Helped by post-pandemic progress made on the economic front, alongside support from recovering oil prices, analysts see signs of the rally continuing as long as the prevalent conditions remain.

“Going ahead, ongoing recovery in oil prices combined with resumption in full trading activities post Eid holidays will likely see the indices consolidating on the higher side,” said Vijay Valecha, Chief Investment Officer at Century Financial.

The Dubai Financial Market (DFM) gained 2.17 per cent last week, while the Abu Dhabi Securities Exchange (ADX) ended up 1.45 per cent week-over-week.

Markets to catch up with global peers

"For the region, equity markets are likely to catch up with the global markets due to the limited participation from investors in the previous week," said Iyad Abu Hweij, managing director at Allied Investment Partners.

“The easing of restrictions in domestic markets and recovery in oil prices should be encouraging and lead to investors taking calculated risk within the regional markets,” Iyad Abu Hweij added.

The oil price rally seen in recent weeks continued as prices surged over 7 per cent last week, which helped amass an 87 per cent gain during the month of May. However, prices are still down by 42 per cent in the year so far.

“Primary factor driving the current rally include OPEC & other non OPEC producers scaling back on their output by more than market expectations in order to normalize the supply side of the market,” Valecha added. “On the demand side, major economies reopening are likely to prop up the demand in immediate to medium term.”

DFM down for a second day

However, there was reason for caution among investors as stocks in Dubai were down for a second day on Sunday, as markets retreated from gains made post-Eid and factored in some of the wider macroeconomic uncertainty.

In a volatile trading session, the Dubai Financial Market (DFM) index ended down 0.8 per cent to trade at 1,945 points. The Abu Dhabi Securities Exchange (ADX) closed up 0.5 per cent at 4,141 points.

For the entire Gulf region, trading activity was subdued last week as 2 out of the 7 indexes were closed and the rest of the indexes witnessed a shortened trading week on account of Eid Al Fitr celebrations.

The region’s largest bourse – Saudi Arabia’s Tadawul – opened up about 2 per cent on Sunday after a five session break as the kingdom eased coronavirus-related restrictions.

Investors eye worsening US-China spat

Despite optimism on the pandemic front, market participants were eyeing yet another week riddled with uncertainty as a public political spat stewed between the world's top two economies, US and China - which is why weekly gains may stay capped.

“The focus this week will be on politics and central banks,” noted Aditya Pugalia, Director of Financial Markets Research at Emirates NBD. “On the political front, the US-China rather public confrontation and the next round of Brexit negotiations will be watched.

“We also have the European Central Bank and Bank of Canada policy meetings where little change is expected in either interest rate or direction of policy… Beyond that, the US non-farm payrolls data will be of interest to investors.”

Stocks on a positive trajectory despite uncertainty

Despite the overhanging uncertainty, global equities stayed on a positive trajectory for the second consecutive week as most countries eased economic restrictions considerably as fears of a second wave of infections receded.

“Notwithstanding heightened political tensions, global equities rallied last week amid indications that the economic impact of coronavirus has peaked,” Pugalia said.

“Investor sentiment also received a boost from continued stimulatory measures by policymakers across various economies.”

Uneven gains seen across markets

While global equities have recovered sharply from the lows of March 2020, gains have been uneven across markets, Pugalia explained.

Developed market equities have led the rally with the MSCI G7 index trimming their year to date losses to an 8.3 per cent decline. In contrast, the MSCI emerging market index and the MSCI frontier market index are still down 16.5 per cent and 19.3 per cent in the year so far.

“The outperformance can be put down to the ability of developed economies to spend their way out of the coronavirus pandemic, unlike emerging market economies,” Pugalia added.