US Federal Reserve’s mixed messages perplex UAE markets

The Dubai Financial Market General Market had its best day in nearly six months on Thursday, closing up 1.96 per cent at 3,513.57. Sarah Dea / The National

Stocks in the UAE could be set for further gains in the week ahead, standing to benefit further from the US Federal Reserve’s decision on Wednesday to leave US interest rates unchanged.

However, analysts have warned that dissenting voices on the Fed’s rate-setting committee, together with the prospect of a rate rise before the end of the year, may increase volatility.

MSCI’s Emerging Markets Index had its best week since mid-July last week, in the aftermath of the Fed’s announcement.

The index closed up 3.62 per cent for the week in spite of late profit-taking on Friday, as passive money flowed back into emerging markets.

Blue-chip stocks in Qatar and the UAE may stand to benefit from such flows, according to EFG Hermes.

“Passive inflows into EM could recover following the Fed’s decision,” the bank said. “We prefer to play the potential recovery in flows via UAE equities as we like the macro story and market fundamentals.”

Large companies such as Emaar Properties, Etisalat and DP World are likely to be stocks of choice in the UAE alongside Qatar’s QNB, the bank said.

The Dubai Financial Market General Market had its best day in nearly six months on Thursday, closing up 1.96 per cent at 3,513.57, with Emaar surging 2.87 per cent to Dh7.16.

The Fed’s 10-member rate setting committee said that the case for interest rates had strengthened, with three members voting for an immediate quarter per cent rise.

Such mixed messages are likely to increase volatility, according to Ana Thaker, a market economist at PhillipCapital UK.

“The notable difference [this time] is that the [committee members] are split as to the best course of action, which will make for an interesting few months ahead of the last two meetings of the year,” she said.

“We are likely to now get even more mixed messages from the Fed.”

Follow The National's Business section on Twitter