The Dubai Financial Market (DFM) fell seven per cent on Tuesday, its largest one-day drop since the emirate was hit by a debt crisis in November 2009.
The index, which had been outperforming regional and global stock markets, was spooked by the increasing probability of a Western attack on Syria, say experts. It closed at 2,550 points.
“GCC markets tumbled on Tuesday as a military strike on Syria became more imminent,” said MR Raghu, senior vice president of Research at Markaz.”Dubai led the board by booking a seven per cent decline. Saudi Arabia shed 4.19 per cent followed by Kuwait which lost three per cent.
“We believe that Dubai had the most violent reaction to the news due to more foreign investor influence compared to other GCC countries. This reaction to current events is not sustainable as GCC economies are strong and thriving,” he added.
The DFM has seen gains of almost 60 per cent year-to-date, buoyed by Dubai’s growing economy and recovering real estate market. The index reported a second quarter net profit of Dhs69.5 million, up sharply from Dhs10.2 million in the same period a year ago. It is also the best performing emerging market bourse this year.
Earlier this week, on August 25, the DFM climbed 1.8 per cent to reach a new 57-month high of 2,748 points while the market traded 1.29 billion shares, its highest volume since June 2009.
But not everyone is optimistic about continuing growth.
“After rising 83 per cent in the past year the market is behaving as it did in 2005 and getting way ahead of economic reality,” said Peter Cooper, editor of investment newsletter ArabianMoney.
“In 2005, the Dubai index doubled and was the world’s best performing stock market, and it was the worst performer in the world in 2006. Still that did not stop the local economy motoring upwards for another three years.
“We are worried about a correction in global financial markets if oil prices rocket upwards due to the problems in Syria, Egypt and Libya, and also due to the sudden rise in US interest rates over the summer that the Fed seems unable to correct.
“Dubai stocks look very vulnerable to a world wide sell-off in equities, especially with prices having risen so far so fast,” he explained.