Dubai’s stocks posted the biggest swings in the world in the past month as concern the U.S. is moving closer to a military strike against Syria led investors to exit this year’s best-performing index.
The DFM General Index’s 30-day volatility, a measure of fluctuations in Dubai’s equities gauge, rose to 32.6 yesterday, the highest since April 2012 and the most among 72 indexes tracked by Bloomberg. That’s one point above the Philippines and Japan and marks the biggest spread in more than three years to the MSCI ACWI Index of emerging and developed-world stocks.
The benchmark index in Dubai, one of seven sheikhdoms that make up the United Arab Emirates, dropped 13 percent since reaching a five-year high on Aug. 25 as U.S. President Barack Obama called for military intervention in Syria over a chemical attack. The absence of unrest in Dubai as uprisings swept through the Middle East since 2011 earned the emirate safe-haven status among investors, who drove the index up more than any benchmark in the 50 largest equity markets in 2013. The DFM fell 3.7 percent yesterday, the world’s steepest drop.
“Market participants were caught a little by surprise by the U.S. move after the chemical attack,” Sebastien Henin, a portfolio manager at The National Investor, said by phone from Abu Dhabi yesterday. “They were not expecting any Western involvement in a conflict that’s two years old.”
Dubai’s index rallied 69 percent this year through Aug. 25 before shares succumbed to selling amid concern the fallout from any Syria escalation will damp a recovery in tourism and trade, the main drivers of economic growth. Higher volatility means an asset or index can swing dramatically in a short period, increasing the potential for unexpected losses.
Obama won support this week from two top House Republicans for military action against Syria. He’s seeking Congressional approval for a plan to punish the regime of President Bashar al-Assad for alleged use of chemical weapons in an Aug. 21 attack that killed more than 1,400 people.
“The volatility really spiked in the past 10 days, as the talk of a Western strike on Syria emerged,” Mahdi Mattar, Abu Dhabi-based chief executive officer of Finance House Capital, said by e-mail yesterday. “The market is one of the best performing in the world, and speculative investors provide most of the liquidity.”
Deyaar Development (DEYAAR), the biggest gainer on Dubai’s benchmark index this quarter with a 50 percent rally, saw its 10-day price swings soar to 131 yesterday, the highest since December 2009. The shares fell 3.5 percent to 54.9 fils (15 U.S. cents). Deyaar and Union Properties PJSC (UPP) together accounted for more than 40 percent of volumes on the DFM so far this month, data compiled by Bloomberg show.
Union Properties, whose shares closed at 60 fils yesterday, posted 10-day price swings of 128, also near the highest in almost four years. The volatility reading for Emaar Properties PJSC (EMAAR), Dubai’s biggest stock, was less than half that at 57. Shares of Emaar, which developed the world’s tallest tower, fell 3.1 percent yesterday. The MSCI upgraded the U.A.E. to emerging-market status in June.
“Retail investors have been very active in the summer, and that’s something new,” Henin said. “Hot money came in during August targeting high-beta names and penny stocks. That cash is fast to go in and fast to leave.”
Before Syria risks worsened, Dubai’s index had proven resilient to this year’s selloff of emerging-market assets, which pushed the MSCI Emerging Markets Index down 11 percent. Shares in the DFM trade at 11.4 times projected 12-month earnings, compared with a multiple of 10 for the MSCI gauge, data compiled by Bloomberg show.
“The volatility will continue, but the uptrend will not disappear,” Henin said. “What is happening isn’t insignificant, but the macro story across the region is intact.”
Wholesale and retail trade account for almost a third of Dubai’s economy, which grew at the fastest pace in five years in 2012 and is set to expand by 4.6 percent on average through 2015, according to government estimates. That’s more than twice as fast as the prior four years.
The emirate’s real-estate industry is also recovering from one of the world’s worst property crashes triggered by the 2008 global credit crisis. A growing population and improving economy are driving the housing rebound rather than the type of speculation that fueled a boom in home prices before 2008, Standard Chartered Plc said in a report yesterday. Apartment prices have climbed 38 percent in 12 months, it said.
“Near term, we could continue to see volatility based on news headlines,” Amer Khan, a director at Shuaa Asset Management, said by e-mail yesterday. “Over the medium term, the U.A.E.’s fundamentals remain strong and it should eventually be reflected in valuations.”
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