Sell in May and go away, the old adage goes. With the traditional summer lull approaching and Ramadan less than three months away, many traders appear already to have fled the UAE's markets.
Trading values on the Dubai Financial Market dipped below their six-month average last week as investors sat on the sidelines.
Markets had been expected to experience a rise in sentiment as the Jebel Ali Free Zone Authority and DIFC Investments, two government-linked holding companies, said they had entered talks with creditors to refinance Islamic bonds worth a total of US$3.25 billion.
Concerns over the companies' ability to repay the debts, which are due this year, had left a major question mark over Dubai's markets.
But with the shadow of the European sovereign-debt crisis refusing to disappear fully from Gulf markets, investors were wary that signs of progress on Dubai's debt could vanish quickly in the event of trouble, said Jarmo Kotilaine, the chief economist at Saudi Arabia's National Commercial Bank. "It ain't over till the fat lady sings," he said.
External shocks could still derail the refinancings, particularly if borrowing costs start to increase, Mr Kotilaine added.
"I suspect we're entering a period where Europe is at the forefront," he said.
European stocks may be further rattled by parliamentary elections in Greece and the first round of the French presidential election, both taking place today.
A victory by François Hollande in France is expected to bring the continent's fiscal compact under renewed pressure, said Neil Mellor, a currency strategist at BNY Mellon.
"The fact remains that the European Union hasn't changed its tone on austerity," he said. "If governments in France and Greece are going to try to renegotiate the deficit treaty, that's going to isolate Germany."
Political issues could also play a major role in Egypt this week, analysts from Capital Economics wrote in a research report.
"Egypt's presidential elections, which are due to be held on the 23rd and 24th of May, will dominate events in the coming month. Already, Cairo has seen violent protests over the past few days," the report said.
"Moreover, there are fresh doubts over the IMF's $3.2bn package, as well as Saudi Arabia's $2.7bn in financial assistance. The risk of a full-blown balance of payments crisis is therefore rising."
Tension between Gulf states and Iran surrounding the islands of Abu Musa and the Greater and Lesser Tunbs is also set to escalate, the report added.
Data from the manufacturing sector released yesterday revealed an acceleration of economic activity in Saudi Arabia, with the HSBC purchasing managers index for the kingdom rising to 60.42 in last month, up from 58.73 in March.
A PMI reading above 50 indicates economic expansion, while less than 50 signals contraction.
Saudi stocks, which typically set the tone for trading in the rest of the Gulf, have begun the week with the Tadawul All-Share Index falling 1.27 per cent to 7,450.26.
In the UAE, companies including Abu Dhabi Islamic Bank, Abu Dhabi National Hotels and Abu Dhabi National Energy Company, also known as Taqa, are due to report earnings this week.
The release of earnings data may provide life to local markets, which limped through a bruising week.
Dubai's stocks were hardest hit, with the Dubai Financial Market General Index falling 4.2 per cent to 1,582.09 over the course of the week.
The Abu Dhabi Securities Exchange General Index slipped 0.2 per cent to end the week at 2,501.44.
Meanwhile, the S&P AFE 40 index of Arab blue-chip stocks fell 0.1 per cent last week.
While the euro zone wavers, employment data in the United States is pointing to a cooling-off in an economy that only a few months ago appeared to be in recovery.
The release on Friday of a disappointing set of US employment statistics is only adding to the gloom.
Employment in the world's largest economy rose by 115,000 jobs during April, according to the labour department.
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