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The UAE bourses fell on Tuesday in line with slump in global equities over inflation concerns and analysts believe that the local market will continue to follow the global trend going forward.
However, decline in the UAE and other regional markets was less severe as compared to equities in other regions around the world.
World stock markets nose-dived for a fourth day running on Tuesday, having seen $4 trillion wiped off from what just eight days ago had been record high values. Most Asian markets closed in red while Europe's main bourses started down as much as 3 per cent and later staged a recovery.
Analysts believe that the fundamentals of the UAE and regional stocks are strong and the slide is purely reflection of what is happening in the overseas markets. Equity markets fell across the globe on Tuesday after strong US jobs data prompted concerns about increased chances of interest rate hikes by Federal Reserve. Taking cue from the US equities, stocks in most of the Asian, Mena and European also fell the next day on Tuesday. Profit-taking was also blamed for the plunge in the markets.
The Dubai Financial Market General Index sank 1.5 per cent to close at 3,326.4 points. As many as 32 scrips declined while three gained in 4,576 trades. Overall, the market recorded 256.6 million shares changing hands worth Dh398.5 million on Tuesday.
Ithmar Holding, Marka, Aramex and DXB Entertainments were the top losers of the day, losing more than three per cent, on Dubai Financial Market. While Al Salam Sudan, Gulf Navigation and Emaar Development were the only gainers of the day.
Abu Dhabi Securities Exchange also shed 0.9 per cent with 21 scrips ending in negative territory while five gaining on Tuesday. Overall, 160.5 million shares were traded worth Dh208.5 million in 1,526 trades. Axa Green Crescent, Al Qudra, Agthia and Abu Dhabi Ship Building were the top losers while Methaq, Abu Dhabi Aviation, Rak Bank and Rak Properties bucked the trend and ended in green.
Mohamad Al Hajj, strategist at EFG Hermes Research in Dubai, said the decline in the UAE and Mena equties is not reflection of any fundamental changes in markets but just a correlation with the global equities.
Al Hajj noted that the decline in Mena markets was less severe than what was witnessed in the US and Asian markets.
"Mena markets are not expensive in relation to emerging markets and the US. Also dividend yields by the Mena markets are better than offered by emerging markets," he said, adding that "while we could see increased volatility and further downside globally, regional markets will likely recover once the global sell-off stabilises."
Aditya Pugalia, director, Financial Markets Research at Emirates NBD Research, says the correlation between the UAE and the global markets will continue going forward.
"More so when moves in global equity markets are sharp and widespread. Also remember that UAE markets are part of the MSCI Emerging Markets index and any outflow from the broader index is likely to have an impact."
In the GCC, Saudi Arabia's Tadawul fell 1.6 per cent, Oman's Muscat Securities Market dropped 0.77 per cent and Boursa Kuwait slipped 1.3 per cent.
"If investors had been waiting for an opportunity to take profits, the prospect of higher than expected inflation and tightening by the Fed provided just that," added Richard Hunter, head of markets at online stockbroker Interactive Investor.
Major concerns
Pugalia believes that inflation is not the only major concern for investors globally.
"While concern over inflation is a factor for the decline in global markets, it is not necessarily the only trigger. The decline in global markets is more on account of stretched investor positioning and the sell-off was likely exacerbated by stop-loss triggers."
The recent sell-off was preceded by sharp rise in global equities in January 2018. As the MSCI World index and the MSCI Emerging Markets index had risen 5.3 per cent and 8.3 per cent, respectively, last month.
In the immediate future, local markets are likely to take cue from movements in global markets. An extended sell-off in the US and emerging markets is likely to weigh on investor sentiment in the UAE too, Pugalia added.
International markets
Among the biggest fallers in international markets on Tuesday was Tokyo's Nikkei 225 stock average, which ended 4.7 per cent lower at 21,610.24, having earlier been down a massive 7 per cent. All other Asian bourses tanked, too, including the Shanghai Composite index, which closed 3.4 per cent lower at 3,370.65 and Hong Kong's Hang Seng, which skidded 5.1 per cent to 30,595.42. Australia's benchmark S&P ASX 200 slid 3.2 per cent to 5,833.30 and South Korea's Kospi declined 1.5 per cent to 2,453.31. India's Sensex also lost 1.6 per cent.
Europe's main bourses started down as much as 3 per cent, leaving investors with little option but to seek the traditional refuges of gold, the Japanese yen and one of the initial triggers for the selloff - benchmark government bonds.
The selling persisted into European trading hours, though there were some signs of recovery. The FTSE 100 index of leading British shares was 1.6 per cent lower at 7,221 while the CAC 40 in France fell 1.5 per cent to 5,209. Germany's DAX was down 1.9 per cent at 12,445.
- waheedabbas@khaleejtimes.com
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