UAE blue-chip stocks, especially real estate, feel brunt of investors cutting exposure.
Dubai: Unsurprisingly, investors on both the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) have responded with a high degree of caution to the situation in Israel and its potential implications for the Middle East. By 12:30 pm, the Dubai stock market had declined by 2.7 percent, and the ADX had fallen by 1.2 percent.
At the close of trading, the DFM was down by 2.6 percent, marking its most significant single-day drop of the year, surpassing the 1.49 percent decline observed on March 14. The ADX closed 1.29 percent lower.
Investors had the entire weekend to make their decisions, but it appears that a “wait-and-see” sentiment is prevailing. They are also likely factoring in the increase in oil prices following the weekend’s unrest in the region, with futures rising by 3.73 percent to $85.88 per barrel.
Notably, stocks like Emaar, Dubai Islamic Bank (DIB), and Emirates NBD exhibited declines on the DFM, particularly among the most actively traded by value. On the ADX, prominent blue-chip stocks such as Aldar, International Holding Company (IHC), and Alpha Dhabi also saw declines, along with Multiply and Q Holding.
Analysts and investors are in agreement that this week will be a challenging one for Gulf markets, as they closely monitor developments in Israel and Gaza. The Saudi stock market, which opened on Sunday, immediately felt the impact, closing down by 1.1 percent for the day.
What Investors Should be Looking for
It’s crucial to establish a “bottom level” for the extent of the stock market decline during this period, and this should be a key point of consideration for investors. An analyst pointed out, “Oil prices will play a significant role in shaping market sentiment, and energy-focused companies will be closely monitored in the short term.”
As observed today, there has been noticeable pressure on blue-chip real estate stocks on both the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX). This outcome was within the expected range of outcomes given the current circumstances.
In the year-to-date, the Dubai Financial Market (DFM) index recorded its most notable single-day gain of 2.28% on July 3. Similarly, Abu Dhabi’s FTSE ADX experienced its highest one-day gain of 2.21% on March 17.
Thus far, the DFM’s most substantial one-day decline during this period occurred on March 14, with a drop of 1.49%. For the FTSE ADX, its largest one-day decline was 2.63%, which took place on January 27.
Certain analysts are suggesting that as the Q3 results begin to be released from next week, it’s probable that investors will adopt a cautious approach, adopting a “wait-and-see” stance. However, the unexpected development of the Israel situation has added another layer of uncertainty. It would likely require strong Q3 results from major publicly listed companies to instill confidence and bring about a market rebound.
If not UAE Equities, what?
Investors with exposure to international markets should also carefully consider the prevailing factors influencing the markets.
Gary Dugan, Chief Investment Officer at Dalma Capital, based in the Dubai International Financial Centre (DIFC), emphasized that the near-term prospects for both bonds and equities on a global scale continue to pose challenges.
“Asset market sell-offs can present attractive buying opportunities. We see the recent decline in high-quality bonds as a promising long-term investment opportunity.
Over the past five months, yields on US 10-year government bonds have surged by 1.6 percentage points, reaching 4.8 percent – the highest level since 2007.”
“While we do have concerns about inflation, we hold the belief that bond yields have now surpassed the expected long-term inflation rate. In the realm of equity markets, we would exercise patience and await a subsequent 5-10 percent decline before considering purchases.
During such a decline, we would focus on acquiring European luxury goods companies (anticipating a rebound in Chinese demand), investing in the Indian equity market (due to its long-term growth potential), and positioning in US tech companies to leverage the AI revolution.”