Dubai: Continued demand for property investments and oil at or around $100/barrel should help UAE stocks withstand the level of uncertainty coursing through global markets. In the last two days, the key DFM and ADX indices have been moving within a narrow range, and a similar trend could there when markets open today.
Last evening, analysts had been expecting a stormy start for UAE stocks after the Dow dropped more than 500 points. But the losses were trimmed to 208 points, while the tech-heavy Nasdaq even being in the green for some time before closing slightly down. So far, so good, and major Asian markets have started the day in flat or relatively positive territory, with the exception of Singapore's, at 8.40 UAE time.
So, what’s likely for UAE stocks in the short-term? “We have seen in the past that ADX and DFM do react to recession worries at a much later stage,” said Vijay Valecha, Chief Investment Officer at Century Financial. “That could be the possibility even this time around.
“Although interest rates have been rising on pace in the UAE and the GCC, the equity and bond markets are still not experiencing a drastic downtime. The major reason for this has been the bullish nature of crude oil and also a still steady real estate market.”
So far, there's nothing much to show that foreign investors are reducing their exposures in UAE stocks
According to Valecha, there are still no signs of foreign funds reducing their exposures in local markets and seeking dollar assets.
Whatever be the case, the next two weeks will likely remain choppy for global and regional stocks. The reporting season will soon start in full swing, with the biggest UAE banks being among the first to report. Plus there is the Fed set to announce another major rate hike – will that be by 0.75 per cent or 1 per cent?
"At least one Fed speaker – there were many – mentioned 1.0 per cent - I still think it is a bridge too far for the FOMC to go 1 per cent, but hey, it's 2022 and nothing should surprise us anymore," said Jeffrey Halley, Senior Market Analyst - Asia-Pacific at Oanda, an FX consultancy, in a note.
Wall Street finished lower (July 13), but on another week, if we had seen data like that from the US, Wall Street would have been rushing for the exit door. The resilience of Wall Street implies that US equities markets could be set for a bear market rally.
Get defensive?
At times of market stress, investors are bound to go in for a less risky approach. Some of that is already apparent, according to Farah Mourad, Senior Market Analyst of XTB MENA. “More investors in the region could be leaning towards defensive positions - if that is not the case already - as global sentiments turn pessimistic. In this regard, regional markets have been recording large price corrections.”
Even “Banks and property companies have seen their share of decreases (in stock prices) and could continue to do so as rising interest rates impact borrowing and slow economic activity down. Utility companies like DEWA on the other hand could be able to maintain more stable prices.”
Oil’s chances
Oil prices are holding up at $100 a barrel levels, and that’s been a solid foundation for Abu Dhabi’s blue-chips. And with the upcoming results and the dividend payments scheduled for September, investors on ADX will double down on systemically important stocks – TAQA, the ADNOC entities, and IHC and its subsidiaries.
But “The market in Abu Dhabi remains exposed to volatility in oil markets and demand forecasts slide,” said Farah. “Lower oil could lead to poorer stock performances.”
With higher interest rates and declining prices, margin trading could be squeezed due to the higher borrowing costs as well as the higher risks involved
