In the week ahead stock markets in the UAE will avoid any drastic reaction to sliding oil prices in the wake of Opec’s decision not to curb its output levels.
Opec on Friday agreed to maintain its oil output at about 31.5 million barrels per day, pushing the price of Brent crude close to its lowest point in six years. Historically, UAE shares have follow ed oil prices, but stocks are expected to be only slightly affected by the oil market’s reaction to Opec’s move, according to traders. “This was expected and factored in [the market],” said a regional-based trader. “Iran’s [increased] oil production is coming next into play, it is a matter of time. So the market is expecting that and the UAE is diversifying its GDP away from oil.”
Sebastien Henin, head of asset management at TNI, The National Investor, in Abu Dhabi, said that there could be a “psychological impact” on the market after oil at one point fell below the $40 per barrel threshold, but this could drive the UAE market to a “weak opening and nothing major” on Sunday.
Brent crude has fallen about 18.5 per cent in the past three months and Dubai’s benchmark index is almost 9 per cent lower during that time. Abu Dhabi’s index has been relatively unscathed, down only 2.66 per cent during the same period. This has been partly down to interest from foreign investors looking at emerging markets tracked by the index compiler MSCI. “The MSCI influence helped [Abu Dhabi-listed] Etisalat last week to trade to an all-time high,” said the regional trader. “We can expect some foreign buyers to purchase the stock in the coming days.”
Market heavyweight Etisalat joined the MSCI Emerging Markets Index last week, after the telecoms operator allowed foreign investors to buy its shares from September. The MSCI emerging market equity benchmark itself fell 1.7 per cent last week, driven by a drop in energy and consumer stocks.
The free fall in oil prices is happening amid strong anticipation that the US Federal Reserve would this month raise interest rates for the first time in seven years. The decision, expected on December 16, is looking more likely after the world’s largest economy last month added more jobs than expected.
“Now it will happen,” said Mr Henin. “I suspect that it will not have an impact on the UAE market, unless there’s a lot of volatility across emerging markets.”
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