Dubai: As markets align with reality and indices globally correct on fears of a second wave of COVID-19, weak signs of economic revival and high unemployment, another week of cautious buying was in sight.
Stock markets across the world witnessed massive selling during the week gone by amid concerns over steep valuations and a tech bubble burst in the US, however by the end of the week, a partial rebound was observed.
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Markets’ tryst with ground reality triggered benchmark indices to fall for consecutive weeks, with fears compounded by fast-rising new virus cases in various global hotspots and rising possibility of lockdowns that could derail the already weak economic recoveries seen worldwide.
The benchmarks are now aligning to market wide investor sentiment and reacting sharply on any negative global cues. Sectors that seemingly withstood the market crash and launched into a massive March-September rally are now finally experiencing selling pressure.
Markets turn edgy
However, taking into account past data, much of this is nothing new, as cases were already rising, vaccines were still far from reality and economies barely stepped out of the slow lane. The only change is the liquidity tap – once the only driving factor for markets – now shows signs of drying up.
“A simple way to think about markets - at its most robust, the post-March rally in stocks had three big engines: economic recovery, massive fiscal policy support and considerable liquidity,” explained Mohamed A. El-Erian, Chief Economic Advisor, Allianz. “The weakening of the first two was masked by liquidity turbochargers and now this has been eroding too.”
However, the possibility of a stimulus package by the US government is picking pace and it remains to be seen if this becomes a reality ahead of the November elections. If so, analysts say it could turn out to be a shot in the arm for the markets that are looking for fresh triggers to move higher.
UAE indices trade mixed
While major stock markets in the Gulf eked out gains on Sunday, UAE bourses had a day of mixed trading, wherein investors were largely on the fence about macroeconomic prospects surrounding the ongoing crisis.
Dubai’s main share index slipped 0.3 per cent, while the Abu Dhabi index was up 0.4 per cent, led by a 0.7 per cent gain in the country’s largest lender, First Abu Dhabi Bank.
The Dubai Financial Market (DFM) plunged 2.9 per cent last week, declining all through the week. Meanwhile, the Abu Dhabi Securities Exchange (ADX) too fell last week, dropping 1.8 per cent, ending down for four out of five sessions last week.
Both the Dubai and Abu Dhabi bourses have been tracking sentiments seen in markets worldwide. Confidence has waned on the UAE benchmarks the past weeks, after growing increasingly upbeat in August, just like its peer global stock markets.
After dropping about 4 per cent in the month of May, the DFM rose 6 per cent in the month of June but slipped 0.5 per cent in July. Similarly, the ADX slipped 2 per cent in May and rose 3.5 per cent in June but slipped 0.2 per cent in July.
Amassing bigger gains in August, the DFM gained 9.8 per cent in the month, whereas the ADX gained 4.9 per cent. However, during September DFM has so far slipped 0.7 per cent and the ADX is down 1.5 per cent.
Elsewhere, the GCC region’s largest bourse benchmark, Saudi Arabia’s Tadawul (TASI) gained 0.3 per cent on Sunday, with lenders Samba Financial Group rising 0.9 per cent and Al Rajhi Bank was up 0.2 per cent.