The region’s markets will likely open for the week in negative territory due to global concerns Europe’s sovereign debt crisis is deepening with nervous investors fleeing to the relative safety of German bunds amid yields on government bond sales in Italy and Spain reaching Euro-era highs.
Analysts say there are very few signs the European Financial Stability Fund or the European Central Bank will have the funding or mandate to provide the financial support that the Eurozone needs to dampen the crisis. Germany’s support is crucial in getting a significant refinancing of the EFSF and a broader mandate for the ECB.
In the absence of strong domestic catalysts, news from Europe would determine the direction of the region’s markets in the near term, say local market experts.
On Thursday, the UAE markets saw extremely low volumes amid a complete lack of investor risk-appetite. In Dubai, the Dubai Financial Market index closed 0.58 percent lower at 1,379.05. In Abu Dhabi, the Abu Dhabi Securities Exchange general index fell 0.08 percent to close for the week at 2,473.57. “The markets will be watching closely the formation of governments in Italy and Greece. A smooth government formation would give the indication the two countries are willing to tackle their debt problems, which would act as a short-term catalyst for the markets,” Samer Darwiche, Financial Analyst at Dubai-based Gulfmena Investments Ltd told Gulf News by telephone. “What is reassuring for the regional markets is that the oil prices remain close to $100 a barrel,” he added.
Gary Dugan, Chief Investment Officer — Private Banking at Emirates NBD in his latest weekly research note said the financial markets are taking heart that the Eurozone is seeing signs of political change. “Leadership changes in Greece and Italy, and pending change in Spain have given hope that some stability can be brought to the Eurozone. New governments and new leaders however face the same problems — the need for very painful structural economic change,” said Dugan.
“The fear in Italy and Greece is that as things get tough, national unity governments may fall to the way-side to political self-interest. Bear in mind that the reason that Greece and Italy find themselves in such a mess is that politicians have spent their time being populist rather than fighting the structural issues that plague their economies. One hopes that they grab the opportunity for long-term reform; we fear they won’t,” he added.
On Friday the US stocks fell, sending the Standard & Poor’s 500 Index to the lowest level in a month, as concern grew that Europe’s debt crisis will worsen and lawmakers will fail to agree on plans to cut the American deficit. The Dow Jones Industrial Average sank 134.86 points, or 1.1 percent, to 11,770.73.