Dubai's equity market experienced its biggest correction in more than a year amid investor worries that the US could end its stimulus programme. The worries have extended a global rout to the emirates of Abu Dhabi and Dubai.
The Dubai Financial Market General Index yesterday fell 2.8 per cent, the most since March 2012, to close at 2,299.78 points. The market traded Dh385.2 million worth of shares. "It was a massive correction that resulted from a mixed bag of triggers," said Tariq Qaqish, the head of asset management at Al Mal Capital in Dubai. "The worries [about the quantitive easing programme] are coming back again, profit-taking after a big rally this year, and at the same time investors are looking forward to the summer and the expectation of lower liquidity."
Last week the US Federal Reserve chairman Ben Bernanke said the bank's spending programme - which has buoyed the global economy in recent years - will probably be over by the middle of next year. His statement on Wednesday has shaken markets from New York to Shanghai, triggering an exodus of equity investments.
The rout was also felt in Abu Dhabi, where property and banking stocks suffered the biggest fall. The Abu Dhabi Securities Exchange General Index fell 1.8 per cent, to 3,564.42. For every one share that rose, four fell.
"International markets have been seeing some selling pressure across the board in the most recent trading sessions. Obviously this event is causing some jitters for investors," said Marwan Shurrab, a fund manager and head of trading at Vision Investments and Holdings in Dubai. Mr Shurrab also suggested that the sharp price drop was a result of "buy on the rumour and sell on the fact" following the UAE's upgrade to "emerging markets" by the international index compiler MSCI this month.
"The market rose sharply on expectations of the upgrade, and now that it happened, it's taking a breather," he said. Dubai Financial Market Company, the only listed bourse in the region, dropped 5.7 per cent to close at Dh1.79 each. Nearly Dh70 million worth of shares changed hands.
Arabtec Holding, the biggest publicly-listed construction firm, lost 5.2 per cent to Dh2.15 on almost Dh50m worth of shares. Emaar Properties, the developer that built Burj Khalifa, declined 2.7 per cent to Dh5.39 each.
Fund managers suggest that the local fundamentals are still solid for the UAE. "In reality, nothing has changed in terms of local macro, company expectations for the second quarter," said Mr Qaqish.