The Dubai Financial Market (DFM) plunged by nearly 6 percent on Wednesday, following on from a near 7 percent fall on Tuesday, amidst growing fears on a US military strike on Syria.
By lunchtime on Wednesday, the DFM Index was down to 2,400 points. Saudi Arabia’s Tadawul opened nearly 2 percent down, while Qatar’s stock market plunged nearly 4 percent on Wednesday. Elsewhere in the Gulf the falls were smaller, with Kuwait down 1 percent and Oman down 2.7 percent.
Shares in Emaar had fallen 4.4 percent to AED5.45 by 12.15pm on Wednesday, while Arabtec shares fell nearly 7 percent.
The recent escalation in the crisis in Syria proved to be the catalyst that eventually led investors to sell off stocks in Gulf markets and cash in on the enormous profits recorded this year, analysts said.
Comments by US Secretary of State John Kerry that indicated America was poised to interfere in the Syrian conflict were blamed for the dramatic sell off.
The UK also recalled its parliament to vote on a response to the crisis on Thursday, while France said it would not “shirk its responsibilities” to act in Syria.
However, analysts said reaction in the Gulf had been far more pronounced compared to other major trading cities including New York because investors had been waiting for some negative sentiment to encourage them to bank the huge paper profits earned this year.
The DFM had risen by more 60 percent since January, making it one of the best profit markets globally, while the Tadawul had also climbed 18.43 percent in the past year.
“Syria is obviously connected to what’s happening but it’s tough for me to imagine it’s the only reason for the 7 percent drop,” Shuaa Capital vice president of asset management Amer Khan told Arabian Business.
“It’s very natural for investors through the year, as they make more and more money, to be a little more cautious if there’s something that might turn sentiment to negative to take their profit and sit on the sidelines.
“In Dubai there were a couple of enormous margin calls as well, which would have exacerbated the problem as well. Investors looking to sell would see the prices and sell a bit more discriminately than otherwise.”
Yassir Mckee, wealth manager at Qatar's Al Rayan Financial Brokerage, agreed that investors had over-reacted.
"Politically, the region is a mess and concerns of war in Syria are high," Mckee told Reuters on Tuesday.
"But the extent of the drop doesn't make sense and people are over-reacting because local fundamentals are strong and even if there is a war, I don't see it significantly impacting Gulf countries."
London Business School Professor of economics Richard Portes said comments by the US Federal Reserve in June that suggested it would wind down its “easy-money” policy also had contributed to Dubai’s market fall.
“All emerging markets have become much more volatile since June, when the US Fed suggested its monetary policy might tighten. Last week India and Indonesia, today Dubai,” Portes said.
“Their geopolitical instability (Syria, Egypt) adds to financial instability.
“The road ahead will continue to be rocky.”