UAE markets slide but Saudi stocks extend recovery

• DFM and ADX reopen
• Bourses closed following Iran strikes
• Both imposed -5% temporary limit

UAE equity markets tumbled on Wednesday as trading resumed for the first session since the United States and Israel launched deadly strikes against Iran, sparking a broader Middle East conflict.

Oil shipments through the Strait of Hormuz have all but ceased and the UAE’s aviation industry is at a near standstill. Such unprecedented disruptions bode ill for the UAE economy, in which travel, tourism and hospitality are important components.

Dubai’s index fell 4.7 percent to a two-month low, while Abu Dhabi’s benchmark dropped a more modest 1.9 percent to a six-week low following a partial late-session rebound that reversed much of its early-day losses.

Declines probably would have been larger were it not for the bourses limiting the maximum price drop to 5 percent.

Passive funds were the main sellers on UAE markets, said Sanat Sachar, a portfolio manager at Azimut Middle East in Dubai.

Emerging market exchange-traded fund (ETF) investors have withdrawn money worldwide, forcing managers to sell stocks included in these funds. With UAE markets closed on Monday and Tuesday, there was pent-up selling demand on Dubai and Abu Dhabi-listed companies as a result, explained Sachar.

“It’s more of a technical sell-off, although the downside ceiling means there will probably be a couple more days of weakness until those passive-fund sell orders are complete,” said Sachar.

This is evident in the subdued level of trading. Dubai’s market turnover was AED896 million, down from AED2.1 billion on February 27, the previous trading session.

Similarly, the number of shares changing hands declined to 165 million from 401 million over the same period, while the number of trades fell by 60 percent.

More news on the Iran conflict

• UAE spent $1bn a day downing missiles and drones, analysts say
• Oil climbs further as Iran targets energy facilities
• Global markets price stagflation risk from a protracted war

“Shutdowns aren’t taken positively by investors. UAE markets should steady within a week, although that’s not to say there won’t be a real economic impact from this war,” said Sachar.

“After a few more days, investors will start to differentiate between companies in terms of the extent to which their earnings will be impacted, especially as active investors return.”

Many such investors are reluctant to buy at current prices, he said, citing the likes of Emaar Properties, low-cost airline Air Arabia and road toll operator Salik, which each have considerable exposure to Dubai’s tourism industry, as likely to be most affected by the ongoing conflict

Emaar Properties fell 4.9 percent, while Air Arabia and Salik each dropped 5 percent.

In Abu Dhabi, Aldar Properties, Dana Gas and Abu Dhabi National Energy Company (Taqa) were among the more than 20 stocks to fall the maximum 5 percent.

Saudi Arabia’s benchmark advanced for a second day, climbing 1.6 percent as of 1217 GMT to be above its final close before the US-Israeli attacks on Iran began as all sub-sector indices rose aside from energy.

Saudi Aramco, which hit an 11-month peak on Tuesday, was down 1.9 percent as oil prices steadied. Brent was trading at $82.61 a barrel at 1217 GMT on Wednesday, having hit a near two-year high of $84.50 a day earlier.

“Saudi Arabia’s economy is more driven by domestic demand, and the country has also been less disrupted,” said Sachar, citing the ongoing operability of major airports and Red Sea ports.

Oil’s elevated price – Brent is up about $12 this week – will support Saudi Arabia’s economy, he said.

“Saudi’s market has underperformed for a prolonged period so regional and international investors have been underweight on the country’s equities, which means there’s less selling pressure than on UAE markets,” Sachar added.

“These investors have heavier positioning in UAE stocks, which are coming from a high base, and so will want to take some profits and reduce their exposure for the time being.”