A rally that’s propelled Dubai stocks into the ranks of the best global performers looks set to cool as geopolitical risks increase and bargain valuations become harder to find.
The Dubai Financial Market General Index has advanced 12% this quarter to the highest since 2014. Its gains are among the 10 biggest across more than 90 equity benchmarks worldwide tracked by Bloomberg.
Stocks tied to the strength of Dubai’s economy and population growth — like Emirates NBD Bank PJSC, toll gate operator Salik Co PJSC and utilities provider Dubai Electricity & Water Authority PJSC — have led the advance.
Positive earnings news and a lower sensitivity to changes in oil prices than Gulf peers have helped drive the surge in Dubai. Its equity market benefits more from tourism and demand for real estate than neighbors like Abu Dhabi and Riyadh. But after the strong run in stocks, investors may turn wary about testing whether valuations can rise further.
“Increasing property prices and tourist arrivals, as well as physical distance from the region’s conflict hot spots have driven Dubai equities higher,” said Hasnain Malik, emerging market equity strategist at Tellimer in Dubai. Still, Dubai stocks may now be “more sensitive to any setbacks than further good news.”
Although the macro backdrop remains healthy, “risk reward in stocks is clearly no longer so attractive,” given the now more demanding share-price valuations, Malik said.
HSBC Holdings Plc strategists are among those advising greater caution toward the region’s equities. John Lomax and his team cut their overweight positions on Saudi Arabia and the United Arab Emirates to neutral.
“We love the structural story, but a combination of heightened geopolitical risk and low oil prices is creating near-term headwinds,” they wrote in a note.
Stocks in Dubai and neighboring exchanges have generally rallied in the past three months, even as concerns over the threat of a broader Middle Eastern conflict grew.
The market in Abu Dhabi, the UAE’s capital, has advanced 5% — the best quarter since March 2022. In Saudi Arabia, the Tadawul All Share Index has climbed about 6% in the best quarter of this year so far. Dubai has outperformed its Gulf peers since the start of July.
Divye Arora, the head of portfolio management at Daman Investment Psc in Dubai, doesn’t view valuations as too stretched yet. “With bonds yields going down, major Dubai names continue to offer attractive dividend yields of more than 5% in 2025,” he said.
The index trades at 8.6 times forward earnings, after bouncing off 2020 lows, but still below the average of 9.2 times over the past decade.
Arora sees further upside in the likes of Salik, Dubai Taxi Co., Tecom Group PJSC, Emaar Properties PJSC, Emaar Development PJSC and Emirates Central Cooling Systems Corporation, he said.
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