Dubai’s stock market reputation as a safe haven in the Middle East was jolted this week as the possibility of a U.S. military strike against Syria spooked all global asset classes.
The benchmark DFM stock index slumped 7% on Aug. 27, making it the worst global stock market performer that day. It fell another 1% today as the prospect of Syria’s woes spreading to the wider region, potentially drawing in neighbour Iran, unsettled investors.
But geopolitical tensions are not new for a region that has suffered many conflicts and wars.
Dubai in fact seems to have benefited the most from unrest elsewhere in the region. The city-state, part of the United Arab Emirates, has witnessed a sharp jump in trade and tourism since the Arab Spring protests broke out over two years ago. Investments meant for, and even from, countries in turmoil reached Dubai’s shores in search of perceived ‘safer’ assets, helping strengthen its economy – after the global financial crisis of 2008 left it on its knees.
Activity in the emirate’s real estate sector continues to pick up and stocks listed on its financial market are among the top performers globally this year. An elevation to emerging-market status by index compiler MSCI a couple of months back further boosted Dubai’s credentials as an investment destination.
In that context, the Dubai Financial Market’s 7% tumble on Tuesday, followed by an equally sharp selloff early in the session on Wednesday, left many in the market wondering if its haven status in the region was under threat.
Such a move is unlikely, says Joice Mathew, a senior manager at Oman-based United Securities.
“Dubai remains a safe bet in the region and the Syria contagion concerns were overdone.” He reckons what is more likely is that investors used Syria as an excuse to take some money off the table.
Afterall, the market is still up some 55% this year and trades at a P/E of about 13 times earnings, according to Zawya.com, compared with an emerging market multiple of some 10 times earnings.
“Moreover, we had noticed a strong retail participation in the Dubai market in the past sessions with a lot of activity on small caps and high beta names,” noted Sebastien Henin, a portfolio manager at Abu Dhabi-based The National Investor.
Some profit taking in this scenario was always on the cards and the Syria story provided the catalyst.
“Given fears over the potential ripple effects that an escalation in the Syrian conflict can have throughout the Middle East, regional markets are likely to remain volatile in the near term,” Emirates NBD’s Tim Fox said in a note.
Most regional stocks markets fell again on Wednesday, but pared early-session losses on bargain buying.-Wall Street Journal
