The stock market in Dubai saw a 10-month record decline recently. DFM General Index witnessed a decrease of 6.7%, which is the biggest since August 2013. But this is minor contribution to the figures since over the last month the emirate’s stock market registered a fall of around 20%.
What is the cause of this sudden decline? The truth is that the reasons are more than just one. Here are the main factors that have influenced Dubai’s stock market decline:
New emerging market status
Index provider MSCI upgraded UAE’s status to an emerging market earlier in June. Analysts predicted that this would boost financial inflows into the emirates by over $1 billion. However, this development can’t materialize overnight. Moreover, in most cases, when a market is reclassified to an emerging one, it witnesses a slowdown in the first one year after its promotion.
Big company drama
One of Dubai’s major developers, Arabtec, last week posted a huge decrease in share values. This has also left its footprint on the current stock market situation. Although the company in question is known for its work on some of Dubai’s most famous buildings, its new strategy to take on riskier and more complex projects has pushed some investors away. In addition, the developer’s chief executive resigned just a few days ago, which made matters even worse. In addition, rumours that the company has started to lay off its employees and that it has lost its government backing added even more fuel to the investors attitude.
Fear of a new property crash
Fear is man’s worst enemy! This saying seems to fit well into the current context of Dubai’s real estate market outlook. Will the bubble burst or not? This has been an almost constant topic discussed by the media in Dubai since a few months by now. At the beginning of June, UAE’s Central Bank voiced its concerns that the property market in Dubai was showing signs of overheating. Not long after that, Dubai’s Index fell by 19%.
News that Islamists militants are making an advance in Iraq scared some investors away. As a result, many are now trying to sell their assets. Traditionally, the holy month of Ramadan is a seen as a quiet period and that further encourages investors to act now. However, this market trend is not happening only to Dubai. It is witnessed all over the Gulf region. Every GCC stock market has registered a decline. For instance, Qatar’s index dropped by 0.9% and that in Abu Dhabi – by 3.3%.
So, will the slump last for a long time? That is highly unlikely. Even though there are many factors which are presently disrupting Dubai’s stock market, it still remains one of the most stable and secure spot in the Arab region. This means that Arab investors will continue to prefer it, since property overheating can hardly be compared to a turmoil or a civil unrest.