UAE investors have started the week with extreme caution, down sizing on some of their positions. Will Q3-23 results bring back the cheer? Image Credit: Shutterstock

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.

20221016 adx
On ADX, blue-chips have lost ground as investors try to guess what's next in the Middle East's unfolding crisis. Image Credit: Ahmed Ramzan/Gulf News Archive

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.”

Biggest ups and drops of 2023
In the year-to-date, the DFM index’s most significant one-day gain was 2.28% - on July 3 - while the same for Abu Dhabi’s FTSE ADX was 2.21% on March 17.

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.

"The US Federal Reserve’s battle with inflation is not won, and the market has still to contend with the threat of a further rate rise. However, it is always important to lift your head up as an investor and focus on the longer term." - Gary Dugan of DIFC-based Dalma Capital Image Credit: Supplied

“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."