DUBAI: Middle East shares jumped Tuesday, with Dubai soaring 8.5 percent, on hopes that a U.S.-led military strike on Syria might be averted after Russia offered to work with Damascus to cede control of its chemical weapons to international authorities. U.S. President Barack Obama said that if Syria handed over the weapons used in an alleged poison gas attack on Aug. 21, it would be a “significant breakthrough” in the crisis. Late Tuesday, the Syrian government accepted the proposal, according to Russian news agency Interfax.
It was by no means clear that the proposal could in practice be implemented to Washington’s satisfaction – just as it was never clear that any strike on Syria would cause Damascus or its allies to retaliate against Gulf Arab countries.
But Gulf markets had dropped sharply from multiyear highs in the past two weeks because of the Syria crisis, which triggered waves of margin selling. So Tuesday’s positive geopolitical news prompted retail investors to buy back shares, and some regional markets recovered nearly half of the losses they had suffered since late August.
Bourses in the United Arab Emirates made their biggest one-day gains in nearly four years. Dubai’s index surged 8.5 percent, though it is still down 8.2 percent from its five-year peak hit on Aug. 25; Abu Dhabi’s benchmark jumped 5.5 percent.
“The market was taking the worst-case scenario before and now it’s taking the best-case scenario – it’s hard to make anything out of this,” said Fadi al-Said, head of investments at ING Investment Management.
“Our view on the long term is very positive – from a valuations, earnings and economic perspective. This short-term volatility and lack of clarity is the name of the game.”
Mohammed Ali Yasin, managing director of Abu Dhabi Financial Services, said: “The market went down in two waves and is recovering the effect of margin pressures.
“It’s an important rebound, which shows the fall was due to geopolitical tension and not fundamentals.”
Yasin said volatility in UAE markets was likely to continue for the next few weeks until there was clarity on possible action toward Syria. “We will see more selling waves but it will be limited in terms of index movement before hopefully returning to its uptrend,” he added.
In Doha, the measure rallied 4.9 percent, rebounding from Monday’s three-month low and recording its largest one-day gain in 45 months. The market hit a near five-year peak on Aug. 22 before geopolitical tensions sparked a sell-off.
Saudi Arabia’s bourse rose at a more measured pace, up 2.9 percent to 7,865 points. It is still down more than 4 percent from last month’s peaks.
Sectors reliant on domestic demand that promise stronger earnings growth led gains – the agricultural and food sector index rose 5.0 percent and the retail index climbed 4.1 percent.
The petrochemical sector underperformed, rising only 2.2 percent; an easing of the Syria crisis could pull down global oil prices, which would probably be negative for the petrochemical complex.
Technically, the Saudi market faces minor resistance at 8,004 points, its high early this month, before strong resistance at the August peak of 8,223. But the market is still long-term bullish, with the uptrend line dating back to the fourth quarter of 2012; strong support lies on the 100-day average, now at 7,557 points, from which it has bounced three times in the past couple of weeks.
After underperforming the rest of the world over the past two weeks, Middle East markets outperformed Tuesday; MSCI’s emerging market index was up 1.5 percent.