Investors returning to the first full week of trading after the end of the Eid Al Fitr holiday have had a lot of market-moving developments to digest during the past few days.
On past performance, chances are good for a bounce in market values as trading activity returns to full swing, said Tariq Qaqish, the deputy head of asset management at Al Mal Capital.
"The historic trend is usually after Eid the market reacts positively as investors come back with fresh ideas."
But as investors in the Middle East catch up with the past few days of developments on international markets, that boost to sentiment could prove fragile.
Abu Dhabi's index has made gains at the end of the past six consecutive weeks, while Dubai's market gauge has risen during each of the past four weeks. That could incline some investors to take profits during the week ahead.
The UAE's markets have enjoyed a remarkably buoyant Ramadan period, untroubled by inconclusive summits on the future of the euro zone and when much of the media's attention was diverted by the 2012 London Olympics.
The Abu Dhabi Securities Exchange General Index soared 5.1 per cent to 2,595.34 during the Holy Month, while the Dubai Financial Market General Index advanced 3.3 per cent to 1,587.42.
During the same period, the MSCI Emerging Markets Index rose 3 per cent to 965.47 and the Stoxx 600 index of European equities rose 2.3 per cent to 268.
As analysts from Bank of America Merrill Lynch put it, during the past few weeks the global financial stresses markets have become used to have gone "AWOL" or absent without leave.
"Although robust US retail sales and industrial production prints led market participants to push out expectations [of a third stage of quantitative easing], the significant chance of policy easing by both the Fed and the ECB [European Central Bank] later this year continues to support risk-on trading," the analysts wrote in a research report. US investors are likely to welcome the possibility of further stimulus measures, they said.
Minutes from the latest meeting of the governors of the US Federal Reserve last month showed some support for a third round of easing. Under such stimulus measures, a central bank buys government bonds to lower effective interest rates. The official federal funds rate has fallen to near zero per cent. Easing purchases are expected to total US$2.6 trillion (Dh9.55tn) since they began in December 2008.
The second round of easing in the United States was launched in August 2010, followed last year by the announcement of Operation Twist, a $667bn plan to sell short-dated securities and buy longer-dated government debt.
While the immediate impact of more Federal Reserve bond-buying would be a boost to US government credit, such accommodative policy measures may also bolster Middle East stocks as global investors become more bullish, said Mr Qaqish. "The market is expecting stimulus plans, and maybe [quantitative easing] No3 from the Fed, because of the slowing economic numbers.
"The market is behaving as if there's an expectation for monetary policy easing and this is definitely a good thing for the equities markets in the short term," said Mr Qaqish.
But for all the expectations of brisk trading to lift equities in the week ahead, significant concerns remain as the economic juggernaut of China seems to be juddering to a halt.
The latest purchasing managers' index (PMI) reading for Chinese manufacturing fell to 47.8 last month, a nine-month low and a dip from June's score of 49.3. A PMI reading of more than 50 signals expansion; below 50 signals contraction.
Oil producers in the Arabian Gulf have become increasingly interlinked with China during the past decade as the country grew to become the world's second-biggest oil consumer.
A slowing rate of growth in China's economy may also weigh on output in nearby Asian economies, according to Capital Economics, although the research house expects stimulus from China's central bank to buoy markets there.
More than 85 per cent of crude-oil exports passing through the Strait of Hormuz sailed on to Asian markets last year, according to the US energy information administration. Crude prices have risen as concern grows that Tropical Storm Isaac could disrupt production in the Gulf of Mexico.
The Saudi Tadawul closed yesterday up 1.44 per cent at 7,104.48.
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