Dubai Financial Market stages comeback but volatility predicted to continue

Recovery comes after 14 per cent was shaved off the benchmark index amid a global equities meltdown last week.

Traders go about their business on the Dubai Financial Market. The DFM gained 3.5 per cent today. Pawan Singh / The National

Dubai stocks staged a relief rally on Sunday after a sell-off last week that shaved 14 per cent off the benchmark index amid a global equities meltdown.

That was triggered by warnings from the IMF of lower economic growth and concerns over the spread of Ebola.

Market analysts, however, warned that volatility in regional markets was likely to continue until at least the end of this year because stock prices were not screaming bargains after almost two years of spectacular gains and as investors prepare for an eventual rise in interest rates.

The Dubai Financial Market General Index, the emirate’s main stock gauge, jumped 3.5 per cent, led by shares of the construction company Arabtec and the regional real estate developer Emaar. Abu Dhabi gains were more muted, with the index rising only 0.5 per cent, while farther afield Egypt’s main index fell 0.8 per cent.

“We’ll see a lot more volatility,” said Simon Kitchen, a Cairo-based regional strategist at the Egyptian investment bank EFG Hermes. “If you look at the US economy relative to the European economy, it’s clear that the Fed will raise rates before the ECB. The fact that the European economy is very weak and is decelerating, these are going to weigh on commodity prices, creating more volatility in financial markets at the same time the Fed is raising rates. So I think that the outlook for markets is for volatility to rise.”

The MSCI All World Index, a measure of global equities, rebounded 1.2 per cent on Friday after losing 2 per cent that week, pushed higher by speculation that central banks may leave interest rates at record lows a while longer to support global economic growth. The UAE’s monetary policy is linked to the Federal Reserve’s because the dirham is pegged to the US dollar. Unlike the United States, however, the UAE’s economy grew more than 4 per cent last year and there is some concern among analysts that low interest rates might be fuelling a bubble in the prices of assets such as stocks and real estate.

“Last week’s correction has brought down valuations but in general they are still not bargain-basement,” said Sachin Mohindra, a portfolio manager at Abu Dhabi-based Invest AD. “One has to be extremely stock selective and that is what is going to pay in the medium term – one has to focus on individual stocks rather than the whole market.”

“In the short term, I expect to see more volatility and it will continue to be driven by international developments. And despite the correction last week, people are still sitting on a lot of profits on a number of stocks and investors will like to lock in some profits.”

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