Negative sentiment will stalk the UAE stock markets this week, with real estate stocks coming under further pressure.
Property-related stocks were rocked last week by a Morgan Stanley report warning of an imminent slump in prices.
Real estate is the foundation of the economic boom. Therefore, doubts about this sector are weighing heavily on the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX), while heightened regional tensions have further convinced foreign funds to take flight.
The DFM fell 2.9 per cent last week to 5,250 points, while the ADX fared even worse, losing 4.1 per cent over the same period and will open today on 4,773 points.
The capital's bourse is in free fall, having declined in nine of the past 10 sessions, and now looks set to test its next support level at 4,675 points. This should trigger some buying, but analysts say it is impossible to forecast whether this will be enough to stop it from slipping any further.
Meanwhile, the DFM is in a similarly perilous position. Technically, it has strong support at 5,200, but if this were to collapse then the index is undoubtedly heading towards the next major prop at 4,800, analysts warn.
"In the near future, volumes are not going to increase substantially because Ramadan will start in less than a month," said Shiv Prakash, a Mac Sharaf Securities technical analyst.
The current downturn is bizarre when one considers the health of the overall UAE economy and firms have posted generally excellent results this year. However, such bald statistics have not convinced investors to buy into the market.
Abu Dhabi is also more vulnerable to further profit-taking because it has markedly outperformed Dubai this year and was the only regional market to make gains in July.
"The Drake and Scull IPO, which was oversubscribed 101 times, was a clear sign that liquidity is abundant but continues to be directed at IPOs and physical real estate as opposed to secondary public market shares," analysts from Rasmala Investments wrote in a research note.
At the start of August, UAE stocks were trading at just over 13 times forecast earnings, making them some of the most attractive buys in the Gulf and so it is surely a matter of time before foreign funds return.
However, such an optimistic outlook is reliant on a solution to the seemingly intractable standoff over Iran's nuclear ambitions.