UAE, GCC stocks to see further volatility in weeks ahead

Dubai - Kuwait and Dubai indices lost the most on the first trading day of the week, losing four per cent and three per cent, respectively.

The UAE and other Gulf stock markets took a major hit on Sunday owing to US-Iran tension after the assassination of an Iranian general on Friday morning.
Analysts expect that the short-term volatility will continue in the coming weeks until the tension eases in the region, hence the investors should take a cautious approach and opt for stocks that have dividend paying capacity.
Kuwait and Dubai indices lost the most on the first trading day of the week, losing four per cent and three per cent, respectively.
Out of 33 stocks traded on the Dubai bourse, only one stock ended in green while all others closed in the red. Among the other major stocks, Emirates NBD bank lost three per cent, Emaar Properties plunged 3.7 per cent Arabtec fell 6.2 per cent, Amanat Holding dived 8.9 per cent; Gulf Navigation slid 9.9 per cent and Shuaa Capital lost 9.6 per cent.
Abu Dhabi Securities Exchange had also lost 1.42 per cent on Sunday, dragged down by mainly energy and property stocks.
Among other bourses, Kuwait lost 4.1 per cent, Saudi Arabia's Tadawul plunged two per cent, Qatar Stock Exchange dropped 2.14 per cent, Muscat Securities Markets dipped 0.3 per cent and Bahrain's All-Share Index fell 2.1 per cent on Sunday.
Aramco fell 1.7 per cent to 34.55 riyals on Sunday, hitting its lowest intraday level since last month's market debut.
Major drop in the local and GCC equities is due to direct impact of tension between Iran and the US following the assassination of the Iranian general Qassem Soleimani on Friday morning.
Going forward, analysts believe that the rising geopolitical uncertainties will weigh on investor sentiments and lead to volatility in the short-term.
Iyad Abu Hweij, managing partner, Allied Investment Partners, said GCC equity markets will definitely be rattled by the ongoing regional tensions.
"We expect markets across the board to fluctuate during the coming weeks. In the current investment climate, investors should focus their portfolios on large cap stocks, particularly financial institutions with a good dividend paying capacity," Abu Hweij told Khaleej Times in an interview.
In addition to the US-Iran tension, he said advancements in the price of oil will also influence the regional equity markets.
Aashish Gidwani, investment analyst at Millennial Capital, said the performance trend of UAE and GCC stock market will be similar to other international markets, as these markets have witnessed huge sell-offs in the aftermath of Iranian general's killing.
"This will create a downward pressure as investors will be more cautious and will switch from high-risk investments to vanilla strategy. Advice would be to take cautious approach in the uncertain time as further escalation is possible," Gidwani added.
Vrajesh Bhandari, senior portfolio manager at Al Mal Capital, said it is not surprising that the Gulf markets reacting negatively given the geopolitics situation in the region.
"We fear this can be an overhang over the next few months and not just a one day or week thing."
Vijay Valecha, chief investment officer, Century Financial, predicts that UAE and GCC stocks will trade very cautiously.
"Should the ongoing conflict escalate further in form a short war or flash attacks, markets are likely to see deeper correction with majority of indices likely to give up some part of their 2019 gains. In today's trading session, Middle East investors have already seem to have hit the panic button with sharp selling seen across all Mena indices. Between 3 to 5 per cent correction from here on would be the bare minimum estimate as investors take this opportunity to book some of their last year's profit," Valecha said.
Stocks/sectors to watch?
Abu Hweij noted that ongoing regional tensions would mostly affect tourism and entertainment sectors.
Valecha noted that consumer staples and pharma majors as well as good quality names in banking and telecom have tend to perform well during times of turmoil.
"This includes stocks like Al Shama Group, United Arab Bank, IHC (Asmak) which were up by over five per cent on an average in Sunday's session. As a best bet, investors are better positioned to invest in such sectors by diversifying across majority of them in order to minimise their overall risk profile," he added.
Valecha predicted that real estate, energy, investment and financial services sectors are likely to suffer the most from the ongoing regional tension.
In the coming weeks, US president Donald Trump's quid pro quid in response to possible Iran counterattack and any fiscal stimulus announcement by Gulf government will influence the markets.
waheedabbas@khaleejtimes.com