Regional investors will be looking abroad this week after a strong equity rally across global markets began to lose steam amid geopolitical tensions and weak economic data.
"We are seeing global markets getting a breather and if we see pressure there, it will translate to pressure here," said Haissam Arabi, the chief executive at the Dubai asset manager Gulfmena Investments.
Stock markets from New York to Shanghai took big strides this month, driven by speculation that the US Federal Reserve would introduce stimulus measures to kick-start the world's largest economy. The Fed chairman, Ben Bernanke, on September 14 confirmed that the banking regulator would begin a third round of quantitative easing, boosting global stock further.
The US Dow Jones Industrial Average has risen 3.73 per cent this month, closing at 13,579.47 on Friday. The Euro Stoxx 50 Index has risen 4.4 per cent in the same period, trading at 2,577.08 in the same period.
UAE stock markets took their cues from the optimists, with the Abu Dhabi Securities Exchange General Index up 0.2 per cent, closing at 2,616.15 on Thursday, while the Dubai Financial Market General Index closed up 1.9 per cent, at 1,605.04.
Global markets began to falter last week, however, after a territorial dispute between Japan and China began to raise concerns over trade relations between the two countries. Sentiment was further eroded after HSBC's purchasing managers' index moved from 47.6 to 47.8, revealing a continued contraction in China's manufacturing industry. A figure above 50 indicates growth.
But any downside in local stocks should be limited, analysts say.
"We should be more resilient," said Khaldoun Jaradat, a broker at Brokerage House Securities in Abu Dhabi.
Last week, Dubai's benchmark crossed a key technical trigger of 1,616 with volumes surging above levels not seen in at least five months.
"The next resistance level is 1,620, crossing that trigger could see the index reaching 1,674 and 1,704," Mr Jaradat said. "Third-quarter results are coming up soon and our fundamentals are different to, say, Europe and elsewhere." Brokers say the earnings season, due to begin in a few weeks, will provide an indication whether local equities are overdone.
"The results will validate whether the current progress is on good footing," said Anastasios Dalgiannakis, head of institutional trading at Mubasher Financial Services in Dubai. "Everyone wants to know whether the recent outperformers in the stock market will deliver good earnings."
In Egypt, where the stock market has rallied more than 60 per cent this year, court cases and dividend payments in coming weeks will be key drivers affecting investor sentiment.
On Saturday, Abu Qir Fertilizers is to hold a general assembly meeting to approve dividends of 13.2 Egyptian pounds per share. On September 30, Pachin, a paints company, will also hold a general assembly to approve year-end finances and dividend distribution. On October 1, the steel magnate Ahmed El Ezz will be tried in court over the ongoing case about the Al Ezz Dekheila Steel acquisition. On October 4, he will also be tried in court on allegations of money laundering and embezzling 6.4 billion pounds of public funds.
Bond investors should watch developments in the Middle East, said a top executive at Pacific Investment Management (Pimco), the world's biggest bond fund.
Douglas Hodge, the managing director and chief operating officer at Pimco, warned investors to pay attention to the developing geopolitical tension between Iran and Israel.
"It is a risk not well known, it is not well understood, it is a huge wild card," he said. "How this unfolds I don't think any of us can answer this today," he told Deal Journal Australia online last week.
Also last week, Germany's chancellor Angela Merkel said Iran was "a threat, not only for Israel but the whole world".
