DUBAI: Regional shares fell Tuesday after Israel carried out a joint missile test with the United States, rattling investors already worried that a possible military strike on Syria could trigger wider regional conflict.
Russia raised the alarm after detecting the launch of two ballistic “objects” in the Mediterranean Sea.
There were no reports of missile strikes on Syria but investors were on edge because the U.S. is preparing for military action over what it says was a chemical attack by government forces fighting rebels who are trying to overthrow President Bashar Assad.
Obama has asked for support from Congress for a strike – which is not expected to take place before mid-September at the earliest.
Dubai’s bourse was the hardest hit, plunging 3.7 percent to hit a seven-week low but is still up 53.4 percent year-to-date.
The retail-dominated market has suffered the most from political tensions in the region, especially because of a sharp early-year rally.
Regional markets underperformed MSCI’s emerging market index, which slipped 0.2 percent, due to their proximity to Syria.
“Regional markets started the day positive with a good momentum and activity but the reports of missile launch took them south,” said Ahmad Shehada, head of trading at QNB Financial Services. “We saw many orders called off and halted.”
Abu Dhabi’s benchmark dropped 1.8 percent, while Doha’s measure retreated 0.9 percent.
Saudi Arabia’s bourse snapped a four-session rally and lost 1.3 percent. Regional markets staged a recovery late last week but analysts say investors were too quick to jump back into markets like Saudi Arabia and Dubai, while Syria’s fate is still unclear.
“As long as there is uncertainty on possible military action in Syria, stock markets that have gone up more than most, are vulnerable to short-term profit-taking,” said an Abu Dhabi-based analyst who asked not to be identified due to company policy.
“Markets have been treating a military action too casually and this pull-back was expected. It’s difficult for people to expect the U.S. to not do anything,” he added.
The consequences of an attack on Syria raises risk because it could trigger a response from allies Russia and Iran and potentially a regional oil supply disruption.
Elsewhere, Kuwait’s bourse fell 1.7 percent, down for an eighth straight session and slumping to a four-month low.
“There’s a serious fear from investors about participating in the market,” said Fouad Darwish, head of brokerage at Global Investment House. “The delay on the Syria strike is causing havoc on the market.”
Kuwait’s new listing of Warba Bank was overshadowed by geopolitical tensions. Shares in the Islamic lender rose 8.3 percent. It trades 4 million shares out of a market total of 242 million.