Interpreting Middle East Economic News and Analyzing Market Trends

Dubai market closes at high for the year, up over 68%

DFM Index 30-9-2013 YTD

 Source: Marketwatch

The Dubai Financial Market (DFM), one of the main exchanges in the UAE, is up over 68% so far this year.  How long will this last?

 

 The DFM’s rise this year has caught the attention of many investors.  The good news for Dubai and the UAE has been rolling in all year long starting with good tourism numbers followed by rapidly rising rents and property values.  In June this year, MSCI upgraded the UAE to emerging market status opening the door for institutional investors to come in.  This was the best news for market sentiment. 

  

From the chart above you can see the market’s rise in anticipation of the MSCI announcement.  Since then, the market has been going up along with trading volumes.  This is unlike the S&P 500, shown in red above, where it hit a record high earlier in the year, but with every new rise in the S&P 500 the volume of shares traded declined. This is a sign of a tired bull market.  By all counts, the S&P 500 is due for a correction. 

  

What about the DFM?  Each rise brings in a rise in volume as well.  Market momentum is definitely up here, but traders in this market are speculators.  It doesn’t take much to scare them off.  Notice the 20%+ correction recently. This was the result of the sell-off in India and other emerging markets.  Investors have been pulling money out of emerging markets all summer long at a record pace. Even though fears have stabilized, the trend is not over.  Investors continue to pull money out of these markets.  The problems in Brazil, China, India, Indonesia and Turkey are not going away.  Yields on emerging market bonds are rising and their export-driven economies are not growing fast enough. 

  

Problems in emerging markets will spillover into the UAE whether or not the economy has sound fundamentals as some ‘experts’ claim.