Stock markets in the UAE and Saudi Arabia rebounded strongly on Tuesday after the mass sell-off early in the week, as investors reacted positively to a recovery in the price of crude oil.
But analysts have warned that the volatility that has gripped stocks for the past month is far from over, as markets continue to price in the effect of lower oil prices on the region’s economies.
Investors flooded back into the Dubai market on Tuesday, taking advantage of newly attractive equities, sending the Dubai Financial Market General Index soaring to its largest one-day rise of the year. The index ended the day up 3.54 per cent at 3,558.37.14.
Shares in Abu Dhabi also bounced, ending the day up 1.63 per cent at 4,334.17.
Regional investor confidence received a boost from oil prices, which broke a four-day losing streak after widespread sell-offs. Brent crude, which hit a six-year low on Monday, was trading up $1.21 at $43.90 late yesterday afternoon.
Saudi equities reaped the biggest reward of the day, rebounding strongly after falling by more than 12 per cent during the first two days of the week.
The Tadawul All Share Index was one of the best-performing stock markets in the world yesterday, closing up 7.38 per cent at 7,543.05.
But analysts cautioned against reading too much into the market rebounds.
“When you have a sharp correction it’s normal to see the type of brief, sharp recovery that we saw today, but we expect markets to remain volatile,” said Jaap Meijer, managing director of Research at Arqaam Capital in Dubai. “We’re not going to see a return to the highs of last year any time soon, as lower oil prices means that fiscal policy will no longer provide the same level of support.”
Dubai’s index is still down 5.71 per cent for the year to date while Abu Dhabi’s index is 4.3 per cent lower since the start of the year.
The day began ominously as Chinese equities continued their free fall, with the Shanghai Composite ending the day down a further 7.63 per cent. However the effect on Asian bourses was mixed. While Japan’s Nikkei ended the day down 3.96 per cent, the Hang Seng of Hong Kong and South Korea’s Kospi ended the day in positive territory, closing up 0.72 per cent and 0.92 per cent respectively.
The Chinese government on Monday also announced a cut in its main interest rate by 0.25 per cent to 4.6 per cent, in a fresh attempt to stem losses on the stock market and invigorate economic growth.
The decision to cut interest rates sent a powerful signal to world markets, and would directly effect Middle Eastern markets, according to Mr Meijer.
“When policymakers panic and take drastic action, like the Chinese government has just done, then stock markets tend to stop panicking,” he said. “The health of the Chinese economy is very important for the economies of this region, given their instrumental role in increasing demand for oil.”
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