Markets ride confidence from US stocks

Dubai's stock index bounces back after Dow Jones Industrial rallies to record high amid best economic growth in US in over a decade.
Dubai’s main stock measure, the DFM General Index, rose 3 per cent to 3,832.53 on Wednesday. Reem Mohammed / The National
Dubai’s main stock measure, the DFM General Index, rose 3 per cent to 3,832.53 on Wednesday. Reem Mohammed / The National

Dubai shares rebounded yesterday on renewed investor confidence after the Dow Jones Industrial Average surged to a record high of 18,000 points in the US as data showed the world’s largest economy grew at the fastest rate in more than 11 years.

Dubai Islamic Bank, the largest Sharia-compliant lender in the emirate, and Emaar Properties, the biggest publicly traded real estate developer in the UAE, led the advance.

Dubai’s main stock measure, the DFM General Index, rose 3 per cent to 3,832.53, erasing most of Tuesday’s 3.4 per cent drop. Meanwhile, in the capital, the ADSM General Index advanced 1.4 per cent to 4,533.72.

The Dow Jones Industrial Average rose to a record high after the US Commerce Department revised economic growth in the third quarter to 5 per cent from 3.9 per cent. The more robust economic outlook is likely to trigger interest rate increases earlier than expected in the US, bolstering its currency.

The UAE dirham is pegged to the appreciating dollar, and the rising strength of the greenback will mean cheaper imports for the Emirates from Europe and Asia.

Still, that may be a small consolation amid the declining price of oil, an export commodity that provides the country with more than 50 per cent of its revenue. Concern over the 45 per cent slide in crude prices has roiled UAE equity markets in recent weeks.

But if global growth picks up, that should bolster demand for crude oil, a raw material in many manufacturing industries.

“The GCC has made extremely creditable progress in economic diversification over several years,” said Sachin Mohindra, a portfolio manager at Invest AD, an Abu Dhabi-based investment firm. “However, the upstream oil sector still accounts for a significant share of revenue and remains a key contributor to GDP. Consequently any prolonged weakness in global oil prices remains a key macro risk for the region.”

“Although the uncertainty around oil prices may affect sentiment in the immediate short term, we feel that the encouraging fundamentals of companies, coupled with continuing high liquidity in the markets, should drive markets higher over the next 12 months.”

In the past three weeks, UAE stocks have had the kind of volatility not seen since the financial crash of 2008, as indexes flitted from bull market to bear market and back to bull market.

The volatility in the oil market has been reflected in the fortunes of Arabian Gulf equities. After sliding into a bear market last week, the Dubai measure bounced back into a bull market following a record 13 per cent gain on December 18 and has been on the rise, with some dips in between since then.

The price of Brent crude has tumbled because of an increase in supply from producers such as the US and waning demand from key emerging-market importers such as China. At Opec’s last meeting last month, the group of oil exporters refrained from cutting supply to bolster prices.

And Saudi Arabia, the world’s biggest exporter, indicated this week that it was not interested in cutting supply, even if oil reaches $20 a barrel. Brent was trading lower as of late afternoon Abu Dhabi time, down 2.5 per cent to $60.12 a barrel.

Still, fund managers warn that the ups and downs of UAE stocks will most likely continue for as long as the bottom for oil is out of sight. The improvement, they also say, in the US economy is prompting investors to dump emerging-market equities in favour of companies in the US and other developed countries, and foreign investors have not been net buyers of UAE stocks in recent weeks. Data from the Dubai Financial Market for December trading that shows net buyers and sellers of stocks is not available yet.

mkassem@thenational.ae

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Published: December 24, 2014 04:00 AM

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