The Dubai Financial Market (DFM) General Index dropped two per cent on Sunday to a five-month low of 1,441.80 leading many investors to believe the index is about to enter a bear market.
With sinking oil prices and dwindling share values, partly blamed on the Euro crisis andworries of Iran, compared with the positive gains earlier in the year, experts believe market sentiment is taking a turn for the worse.
Talal Touqan, head of research at Al Ramz Securities, believes that’s the case: “We’ve developed into a bearish mood now. Trading activity has started to slow down, volumes are low and markets are dropping,” he said, speaking to The National newspaper.
Dubai’s index is now only 38 points away from entering a bear market – defined as a 20 per cent decline over a two-month period.
It’s quite a change from earlier in the year when the index climbed 34.8 per cent, putting the DFM firmly into a bull market.
But world affairs and the unpredictability of international markets are now having a substantial effect on the region.
While the possible effect of the Eurozone crisis on the Gulf was previously unknown, Greece’s failed election and worsening economic situation in recent weeks has now clearly had a knock on effect.
M.R. Raghu, senior vice president at Kuwait Financial Centre, previously warned Gulf Business of such a scenario.
“The exit of Greece from the Eurozone will rattle confidence in the currency and stock markets and impact global growth,” said Raghu. “The knock-on effect will have an impact on local economies and will force low oil prices throughout the region.
“Local stock markets will also be affected as they increasingly react to world events. So if the global markets react sharply to the news, which is what we’re already seeing now, then weaknesses in local markets may appear.”
Oil prices have also slumped to below $100 per barrel, raising fears for the Gulf region.