The UAE's property sector and the price of oil are expected to dampen investor confidence.
Abu Dhabi and Dubai markets to open on negative note
Equity markets in the Emirates are likely to extend a downward trend when they reopen today after Eid on fears of further weakness in the property sector, falling oil prices and a negative close on the Saudi Tadawul yesterday.
Both Abu Dhabi and Dubai bourses have retreated from their highs of last month.
Disappointing results, particularly from the construction sector, have upset investor confidence in the past month.
The country's property sector has dragged on stocks and analysts do not forecast a considerable pick-up in trading volumes until the sector strengthens.
"There is nothing to make [investors] rush into buying stocks," said Mohamed Khaled, a relationship manager at Prime Emirates.
"It depends on the real estate sector, which is still dormant and not really moving."
A drop in the oil price has helped fuel the negative sentiment.
Crude oil fell 3.9 per cent to US$81.60 a barrel on the New York Mercantile Exchange on Friday in the biggest weekly drop since August 13.
The commodity hit a two-year high earlier this month of $87.22 a barrel, but the Chinese central bank's decision to slow economic growth led to fears that it would curtail demand for energy and prices fell.
"The first thing to look out for next week is oil, because it needs to be priced in. A week is a long time but the beginning will be mixed-to-negative trading," said one analyst for an international investment bank, who asked not to be named.
"Given the correction has been significant to markets, we could have a weak start [in the UAE] and any moves will continue to come from international markets," he said.
Irfan Chaudhry, an investment strategist at Emirates NBD, said the weaker oil market would turn out to be a temporary blip.
"It will be down for a little while, but then there will be buying opportunity and I expect it to touch $90 in the second half of the year," he said.
Shares in Saudi Arabia, where oil and related industries are the major driver for the economy, slipped in the first day of trading yesterday after Eid al Adha.
The Saudi Tadawul All-Share Index fell 0.9 per cent to 6,383.69.
Local markets are not expected to drop as sharply as their global counterparts in the coming weeks as much of the bad news from third-quarter results has been digested by the market, Mr Chaudhry said.
An impending government funding framework for Aldar, the property developer, could help reignite confidence in the markets.
"If something comes out of that it will be really positive for the UAE markets and Aldar's stock," Mr Chaudhry said.
"Globally, investors are moving into riskier investments, but Abu Dhabi stocks have lagged. The positive news flow because of Aldar is likely to develop momentum in the region."
The Abu Dhabi Securities Exchange general index has gained 11 per cent since a low of 2,471.70 in August, but has retreated from a high of 2,833.09 last month. It closed 3 per cent down at 2,748.92 on the last day of trading before the holiday.
The Dubai Financial Market (DFM) general index has retreated 5.3 per cent since the start of this month to close at 1,687. It has gained 15.3 per cent from a nadir of 1,465.49 in August.
Euro-zone debt worries have weighed on global markets but hopes that Ireland's debt crisis will soon be resolved may lift investor sentiment. In the past week, worries over Ireland have contributed to a sell-off that wiped $2 trillion off global stock markets.
London's FTSE 100 ended the week 0.62 per cent down to 5732.83, while the Dow Jones Industrial Average in the US rose 0.2 per cent to 11,203.550.
Asian stocks fluctuated last week as shares in oil companies dropped on China's policy measures.
The Hang Seng Index was down 0.1 per cent to 23,605.710 and Japan's Nikkei ticked 0.1 per cent higher to 10,022.390.