Dubai: Like their counterparts in the US and Asia, UAE investors too are getting spooked about what the immediate future holds, whether it’s heightened fears over the Middle East situation and about the American economy slipping into a low growth/recession zone.
The DFM is down 4.12 per cent in the first 15 minutes, while ADX slipped 2.27 per cent. On DFM, market heavyweights such as Emaar and Emirates NBD are down by 8.4 and 4.4 per cent, respectively.
Some sort of drop was expected after Asian markets opened this week heavily in the red, with the Nikkei index slipping by over 10 per cent. "If the decline on DFM and ADX remain within range in the coming days, that's still a positive," said an analyst. "Everything will be defined how geopolitics shape up during this timeframe.
"One should follow how institutional investors are doing on their UAE and Gulf market exposures. Any major selloff will be a worry."
GCC stock markets had a net inflow of $149 million during July, 'indicating continued foreign investor interest despite broad challenges', says Iridium Advisors in an update on last month's performance.
We surely need more concrete evidence of recession risk before subscribing to the worst case scenario
The UAE had led with a net inflow of $372 million, 'demonstrating significant investor confidence', while Saudi Arabia faced a net outflow of $310 million after last month's Aramco deal. Kuwait and Qatar had net inflows of $61 million and $36 million, respectively.
"We have been seeing a pickup of foreign flows in the UAE with international institutions representing half our traded volume in both Abu Dhabi and Dubai," said Amer Halawi, Head of Research at Al Ramz Capital. "Our markets have been lagging on the way up - let’s hope they also lag on the way down.
"If they don’t, there could be opportunities down the road as our fundamentals remain strong. For now, we should let the storm pass."
For today, the drops are happening in the other Gulf markets too. Saudi Tadawul on Sunday dropped 2.5 per cent and more pain could be on the way.
'A correction was overdue'
"The correction in Western equity markets - and in Bitcoin and other cryptos - was long overdue," said Sameer Lakhani, Managing Director at Global Capital Markets. "Investors can expect the UAE markets to be more resilient. And finally, the long awaited shift in focus on earnings and dividends may be something international investors will value.
"We’ve had more than 25 IPOs with another 10 or so in the pipeline. This will most likely proceed..."
Dividend season
Retail/instituional investors will also have to keep in mind the interim dividends that will come their way from some of the biggest UAE companies in the coming weeks. This factor should hold them back from engaging in any major sell-offs.
By and large, the bigger listed companies in the UAE cutting across sectors have come up with strong Q2/H1 2024 numbers. Some have also hiked their interim dividends, such as ADNOC Drilling.
In UAE, institutional investors were net sellers in June and net buyers in July. There is a broad-based decline in all sectors in the GCC since the start of August
"Although earnings remain upbeat, these positive sentiments would be offset by the ongoing sell-off globally as well as the geopolitical issues in the region," said Junaid Ansari, Director of Investment Strategy & Research at Kamco Invest. "Investors prefer to stay on the sidelines and on cash during times of stress and volatility in the market.
"Available daily trading data show that foreigners were net sellers on GCC exchanges during the sell-off we witnessed yesterday (August 4). The biggest selling was seen in pharma, consumer durable and healthcare indices with mid-single digit declines in merely two trading sessions.
"We see near term pressure for the banking and financial services sectors as steeper than expected rate cuts would affect bank earnings, while falling financial markets would affect the broader financials services sector.
"Nevertheless, the expected increase in lending given the strong pipeline of projects (in the GCC) would offset some of the selling pressure for the banking sector."
We’ve had more than 25 IPOs in the UAE, with another 10 or so in the pipeline. This will most likely proceed...
Spark for market meltdown
While the high risk of a war in the Middle East was playing in the background, the immediate trigger was the underwhelming job numbers in the US.
“Friday’s (August 2) far weaker-than-expected U.S. labour market report, which showed the unemployment rate spiking to 4.3 per cent and a paltry NFP (non-farming payroll) headline figure of 114k down from a revised 179k in June, has sparked sudden recession fears,” says Simon Ballard, Chief Economist for Market Insights and Strategy, Global Markets at FAB.
“Or at least questions over the quality of the upcoming US economic ‘landing’ and how the Federal Reserve should respond.
“Upcoming data releases will be key to near-term market direction. We surely need more concrete evidence of recession risk before subscribing to the worst case scenario.”
Stock market investors in the UAE and elsewhere in the Gulf will do well to bear that in mind.
US unemployment is now at 4.3%, and the yield-curve inversion has nearly disappeared, as mindsets have instantly shifted from 'fear-of-missing-out' to a 'fear-of-recession', with the odds of such a recession still out
