Tuesday was a day of fluctuating fortunes for the UAE and Gulf equity markets, as the news of Saudi Arabia's inclusion in MSCI cheered investors, but the geopolitical tension and attack on Saudi oil stations prompted a sell-off.
Dubai bucked the global trend and made a strong recovery of 3.5 per cent on Tuesday to close at 2,612 points, after declining persistently over the last few days, due to the geopolitical and US-China trade war worries. The Dubai Financial Market was the biggest gainer of the day on Tuesday after being the worst performer a day earlier.
MSCI on Tuesday announced that 30 Saudi securities will be added, representing an aggregate weight of 1.42 per cent in the MSCI Emerging Markets Index. The second and final step of the inclusion will coincide with the August 2019 Quarterly Index Review.
"Today's recovery is not convincing. It was just reversing on expectation that Emaar Malls and Emaar Development might be excluded from MSCI. But, MSCI retained the inclusion and only excluded Damac," said Issam Kassabieh, senior financial analyst at Menacorp.
Apart from the MSCI factor, analysts believe that ongoing talks between the US-China on trade tariffs is sending mixed signals, because despite the tough stance taken by the two sides, both the parties are still sticking to negotiations to resolve the dispute. And this is bringing out optimism among investors.
Kassabieh noted that the geopolitical tension has risen even further following an attack on two Saudi oil facilities. "Geopolitical tension is high. And that will weigh on the UAE indices during this month," he said.
In Abu Dhabi, equities fell again on Tuesday, losing 2.57 per cent to close at 4,802 points. It was the worst day for the UAE bourse in the last three years. Boursa Kuwait lost 1.32 per cent to 5,998, Bahrain Bourse fell half a per cent to 1,408, and Muscat Securities Market plummeted 0.32 per cent to 3,828.
"There were expectations of First Abu Dhabi (FAB) to have increased weightage on the MSCI, but it didn't materialise. Therefore, it erased all the gains that were seen related to expectations," added Kassabieh. "Equity market are volatile, crypto currencies are on the on rise and gold is also flying high which shows that equity markets are not the best option."
"MSCI was expected.this is more of rebound after the recent sell-off as there are some names that are now 10-15 per cent cheaper than their recent levels," said Nishit Lakhotia, head of research at Bahrain-based SICO.
Anita Yadav, head of fixed income research at Emirates NBD Research, said that US President Donald Trump's positive statement about trade talks has brought some optimism to the GCC and global markets ahead of the upcoming meeting with Chinese President Xi Jinping at the G20 summit.
Trump said he had not decided whether to go ahead with threatened tariffs on another $325 billion of Chinese imports.
"The last few breakdowns of US-China trade talks caused the market to become nervous about the future global growth. Those fears were visible in all asset classes. Since yesterday, President Trump has raised hopes that the talks are going favourably and that brought optimism. The US-China presidents are meeting at G20 and the chances are that something positive will come out. This brought confidence into the market and caused reversal of previous selloff," said Yadav.
Arun Leslie John, chief market analyst at Century Financial, said that the rebound in UAE markets today is in line with the global markets.
"After a ferocious market slump which lasted for almost a week, Trump seems to have mellowed down a bit as he remarked that talks are going to be very successful. It is fairly well known that Trump is very sensitive to equity markets and his encouraging talks are due to the hemorrhage suffered by US stocks on Friday. Anyway, it is always good for investors that US President Trump is concerned about the markets," said Leslie.
He added that real estate stocks should have a relief rally as a lot of negativity is already priced into the stocks.
"New forecasts released from the World Bank suggest that the UAE economy is expected to grow by 2.6 per cent in 2019, three per cent in 2020, and 3.2 per cent in 2021. This should lead to more demand for credit which should be positive for banking sector," Leslie added.
In Asia, barring Indian markets, most of the equities ended in the negative on Tuesday. The Bombay Stock Exchange gained 0.6 per cent, helped by gains in pharma, banking and energy stocks. The Shanghai Composite index slipped 0.2 per cent to 2,883.61, while Japan's Nikkei 225 gave up 0.6 per cent to 21,067.23. The Hang Seng index in Hong Kong sank 1.5 per cent to 28,122. The S&P ASX 200 in Australia dropped 0.9 per cent to 6,238.
Elsewhere, South Korea's Kospi climbed 0.2 per cent to 2,082 and India's Sensex added 0.6 per cent to 37,318. Shares fell in Taiwan and Southeast Asia.
Shares rebounded in Europe on Tuesday. The FTSE 100 in Britain surged 0.8 per cent to 7,220.92, while France's CAC 40 advanced 1.1 per cent to 5,319.22. Germany's DAX advanced 0.5 per cent to 11,933.20. Futures augured an upbeat start on Wall Street, with the contract for the Dow Jones Industrial Average up 0.6 per cent at 25,438.00 and that for the S&P 500 adding 0.7 per cent to 2,827.50.
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