It is rare that a single six-month period contains some of the best market performance in years, and also the very worst. The first half of 2013 meant both for some traders.
UAE stock and bond markets so far in 2013: the best of times, the worst of times
Spreads tightened dramatically in the early months of the year, allowing the Dubai Government to raise a 10-year sukuk at a cheaper rate than Italy paid at the time.
Last month, the UAE and Qatar secured a long-anticipated upgrade to MSCI Emerging Markets status, which is expected to bring at least US$800 million in inflows from passive funds that are compelled to track the index.
But now analysts fret that a wrenching fixed income sell-off during the past six weeks will translate into stresses for the financial system in the months to come.
The trigger for the bond sell-off was the US Federal Reserve chairman, Ben Bernanke, whose comments in May that the Fed would "taper" its monthly bond purchases, followed by indications of interest rates hikes next year, have spooked global markets.
"We've certainly seen quite a reaction in markets generally, and particularly in emerging markets, as they adjust to the inevitable reality that the Federal Reserve's emergency policy measures will need to start to be reduced, as growth picks up later in the year," said Jim Freeth, the regional managing director at JPMorgan Private Bank.
"But it's important to emphasise that the context for this volatility is that stronger growth lies ahead in the US, and that's a good thing."
For investors in the UAE's markets, that may be cold comfort.
Funds tracking the HSBC/ Nasdaq Dubai UAE conventional US dollar bond index have lost money this year, with returns down 4.47 per cent. Sukuk issued by UAE companies have performed little better.
The story on stock markets could scarcely be more different. The Dubai Financial Market General Index was briefly one of the best performing this year, and in spite of recently entering a correction remains up 36.9 per cent year-to-date. The Abu Dhabi Securities Exchange General Index is not far behind, up 34.9 per cent during the same period.
The UAE's credit market indexes have outperformed most other emerging markets. But high net worth individuals, whose bond purchases were fuelled by large quantities of leverage provided by private banks, were being forced to cash in their investments to meet margin calls.
"The pain is being felt across the board - private banks, less sticky money from outside the region, and now by the core investors in the regional bank's treasury desks and insurers," said Ahmad Alanani, a senior executive officer at Exotix, a boutique investor in illiquid debt.
It remains to be seen whether banks and investment companies, which will begin to report earnings for the second quarter in the coming weeks, will be more affected by the rising stock markets or plunging bond markets.
"It's going to affect investment portfolios negatively," said Shabbir Malik,a financial analyst at EFG Hermes "Most investments are not held for trading, so it might not immediately translate into P&L statement losses."
Some local investors were likely to have used the recent volatility as an excuse to buy into markets at attractive prices. But some were likely to have suffered, said Jakob Beck Thomsen, the chief executive for the UAE at Saxo Bank.
"There's no doubt about it, you'll have clients with strategies geared towards low volatility who haven't made money, " he said.