UAE equity markets could see broader impact if regional conflict not resolved soon

Vijay Valecha, March 17, Zawya

The Iran war, now in its third week, continued to weigh on investor sentiment in the UAE with analysts cautioning that an extended conflict could signal deeper economic uncertainty for Gulf markets.

“Markets falling over the past 8 to 10 days has made investors cautious in the region as they monitor ongoing tensions. A four-week conflict will not only pressure UAE markets but also impact GCC-wide markets,” Vijay Valecha, Chief Investor Officer at Century Financial, told Zawya.

While analysts have stressed the UAE continues to remain in a “very robust position” based on its strong fiscal position, Valecha warned that in the event the ongoing conflict does not resolve in the upcoming weeks, equity markets could see a wider impact.

“Ongoing geopolitical risks may keep foreign investment low and market volatility high, more evidently in sectors tied to global trade and tourism, such as aviation, banking, and real estate,” he said.

Sector performance

Since the conflict began, Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) indices have fallen by almost 18% and 11%, respectively. The steepest declines have come from property and infrastructure stocks, which bore the brunt of the selling pressure. Emaar Development dropped 20.1%, while Emaar Properties fell 19.7%.

While sectors such as materials and consumer discretionary have continued to show short gains, most other sectors moved have lower across DFM and ADX.

“Real estate is by far the worst-performing sector, declining 17.86%, reflecting heavy selling pressure in property developers,” Valecha said. “This was in line with the sharp declines seen in major names such as Emaar Development and Emaar Properties, which were among the biggest drags on the DFM index during the week.”

A similar pattern played out in Abu Dhabi, where most sectors ended the week in negative territory as investors remained cautious. Real estate stocks saw the sharpest drop, falling 21.4%, making it the weakest-performing sector on the ADX during the week. The decline reflected heavy selling pressure across property-related names.

Valecha attributed much of the sell-off across UAE equity markets as “largely a risk-driven reaction” rather than a fundamental repricing of the economy.

Valuations in focus

Analysts noted recent market volatility has also led to moderate declines in the valuations of some leading stocks, creating selective opportunities for long-term investors.

According to Valecha, in the event the ongoing conflict does not resolve in the upcoming weeks, UAE equity markets could remain cautious.

“Ongoing geopolitical risks may keep foreign investment low and market volatility high, more evidently in sectors tied to global trade and tourism, such as aviation, banking, and real estate,” he cautioned. “The scenario where this conflict goes on beyond six months may prove to be detrimental not just to the UAE but also to other nations across the Gulf region, especially since the region has interconnected financial markets and a high reliance on international capital flows. Prolonged instability could weigh on investor confidence in key regional financial centres, including Dubai, Abu Dhabi, Riyadh and Doha.”

Source

Zawya