DFM and ADX are trading in a narrow range since the beginning of June. The muted performance of UAE equities might have to do with lackluster oil markets, which have been struck at the same level for the last two months. Having said that, both indices have managed to trade above their 50- and 100-day simple moving average for the last one month or so.
The key question now is what will be the trend of UAE equities in the coming weeks. Narrow trading ranges tend to result in strong moves in either direction, on either side of break out. Given the correlation with oil prices and being a trade and finance hub, what happens in UAE equities will depend a lot on the global scenario.
By this, we mean developments that are unfolding with regard to the coronavirus scenario. A second wave of the pandemic means reopening plans are delayed.
Nevertheless, there is a growing realization among policymakers that the world will have to live the coronavirus for years to come. So, the process of reopening is likely to continue, albeit at a gradual pace. This means the recovery in UAE equities will be more steady in nature.
Globally, August is considered the most volatile of all the months, with Volatility Index typically rallying the most. Higher volatility in practical terms means lower returns. Nevertheless, the overall trend in equities is bullish and dips are likely to offer value for buyers.
The trading range for the ADX is 4,200-4,420 and for DFM, it will be 2,030-2,170. A break on either side will determine the short-term trend.