Markets around the Middle East are poised for another turbulent week after Fitch Ratings said it was weighing the possibility of stripping France of its "AAA" credit rating.
Fitch's warning that Europe's second-largest economy may face a ratings downgrade leaves the UAE's markets facing a fresh bout of volatility when trading resumes today, said Jarmo Kotilaine, the chief economist at Saudi Arabia's National Commercial Bank.
"There is a backdrop of anxiety and there's a clear market reaction," he said. "Usually the effects are fairly limited in duration, but nonetheless they're there - the end result is typically a period of market volatility."
The agency placed the credit rating of Europe's second-biggest economy on "negative" outlook, signalling an even chance that it would downgrade France within the next two years.
"The commitments made by leaders at the EU Summit on 9-10 December and by the European Central Bank were not sufficient to put in place a fully credible financial firewall to prevent a self-fulfilling liquidity and even solvency crisis for some non-"AAA" euro-area sovereigns," Fitch said in its report.
"In the absence of a comprehensive solution, the euro-zone crisis will persist and likely be punctuated by episodes of severe financial market volatility."
Fitch's warning follows a drop in markets in the Emirates on Thursday after the UAE and Qatar failed to secure a crucial upgrade from the index compiler MSCI.
Fitch also placed six other euro-zone countries - Belgium, Spain, Slovenia, Italy, Ireland and Cyprus - under active review for potential downgrade by the end of next month, after downgrades of seven major banks on Thursday.
At the same time as Fitch's action on Friday, Moody's Investors Service also downgraded Belgium's credit rating two notches to "Aa3" from "Aa1", with a "negative" outlook.
"The fragility of the sovereign debt markets is increasingly entrenched and unlikely to be reversed in the near future," Moody's said in its report. "It translates into heightened potential for funding stress for euro-area countries with high public debt burdens and refinancing needs like Belgium."
Worries surrounding the euro-zone crisis were likely to convince many traders to leave cash on the sidelines during the week ahead, said Ali Khan, the head of Middle East and North Africa equity sales at Royal Bank of Scotland.
"The fact is that the current challenges on global markets tend to affect volumes more than it does price," he said. "International events do create a headwind for us, but it has been demonstrated it tends to be on volumes."
Standard & Poor's, another major ratings agency, placed six of Europe's "AAA"-rated countries on "credit watch negative" this month, indicating a 50 per cent chance of a downgrade within three months.
The Saudi Tadawul, the only Gulf market trading yesterday, rose 0.2 per cent to 6,253.66.