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 32.9 at the close in Dubai, the highest since March 2012 and the most among 72 indexes tracked by Bloomberg. That’s about two points above the Philippines and three above 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 15 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 2.5 percent, taking this week’s loss to 7.4 percent.
“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.”
The benchmark index in Abu Dhabi, the capital of the U.A.E., retreated 3 percent, the most since January 2011, bringing the weekly decline to 5.3 percent. The measure’s 30-day volatility reached 19.6, the highest since January 2010.
“The increased volatility in the U.A.E. markets exhibited over the past week has altered foreign investors’ perception of risk for the U.A.E. in general,” Saad al Chalabi, senior institutional trader at Al Ramz Securities in Abu Dhabi, said today.
Saudi Arabia’s Tadawul All Share Index lost 0.4 percent and the Bloomberg GCC 200 Index, of shares in the six-nation Gulf Cooperation Council, fell 0.9 percent.
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.
The U.S. Senate Foreign Relations Committee voted 10-7 yesterday to authorize a limited military strike against Syria, clearing the way for consideration of the resolution by the full Senate when it returns from a five-week break on Sept. 9. Obama wants 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, the second-biggest gainer on Dubai’s benchmark index this quarter with a 43 percent rally, saw its 10-day price swings soar to 131 yesterday, the highest since December 2009. The volatility dropped to 109 today and the shares lost 5.1 percent to 52.1 fils (14 U.S. cents). Deyaar and Union Properties PJSC together accounted for more than 40 percent of volumes on the DFM each day this month through yesterday, and about 34 percent today, data compiled by Bloomberg show.
Union Properties, whose shares have risen 46 percent this quarter, posted 10-day price swings of 128 through yesterday, also near the highest in almost four years. The measure fell to 97 today and the shares closed at 59 fils.
“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 11.1 times projected 12-month earnings, compared with a multiple of 10.1 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.”