(MENAFN- Khaleej Times) Global equity markets were rattled by North Korea's missile test, with most indices plunging into the red on Tuesday. Gold and the euro hit new highs over escalating tensions in the Korean peninsula.
Investors in the UAE and other Gulf bourses stayed on the sidelines ahead of the Eid holidays. The summer lull also contributed to lower volumes in equity markets.
Among commodities and currencies, gold strengthened its safe haven status, hitting this year's high and is projected to sustain this momentum with prices seen hitting 1,400 by year-end. The euro also hit the 2015 high of 1.20 against the greenback on the back of improved Eurozone economies. The Japanese yen and Swiss franc also strengthened against the US dollar.
In the UAE, both the bourses fell, with the Dubai Financial Market (DFM) marginally slipping by 0.06 per cent to 3,610.77 and Abu Dhabi losing 0.48 per cent to 4,463.56 amidst low volumes. The Dubai bourse saw 87.5 million shares changing hands worth Dh143.8 million in 1,535 trades. Abu Dhabi also saw lacklustre trading with 24.93 million volumes and trading value of Dh85.3 million.
Other Gulf markets also lacked a catalyst. Saudi Arabia's Tadawul was down 0.12 per cent to 7,253. The Kuwait index closed 0.14 per cent lower at 6,899. Oman's Muscat Securities Market bucked the trend, rising 0.38 per cent to 5,083.
"UAE markets are in a summer funk and with Eid holidays coming up, volumes have dropped off dramatically. As such, current trading activity is more influenced by the upcoming trading break rather than the North Korea issue. Investors are willing to wait until after the Eid holidays before re-committing to the markets," said Akber Naqvi, head of asset management and executive director, Al Masah Capital.
According to Naqvi, if the North Korea issue escalates and starts having a significant impact on global markets, then regional indices will follow suit and act accordingly. However, at this stage, the impact should be minimal unless the global picture changes dramatically. Markets more intertwined with the global markets such as the UAE may react quicker while more insulated markets such as Saudi Arabia and Kuwait may react slower.
Vijay Valecha, chief market analyst at Century Financial Brokers, said the UAE and regional markets have taken a bit of a correction following weak global cues. However, the impact of North Korean tensions is a global phenomenon and could affect equities in the region as well if tensions escalate further.
Manoj Krishnan, managing director for Leo Capital Advisors, explained that regional markets have a high correlation with global equities. "In that context, we believe any sell-off in global equities will surely affect the regional markets."
In Europe, France's CAC 40 fell 1.3 per cent to 5,011 while Germany's DAX slid 1.8 per cent to 11,911. The FTSE 100 index of leading British shares was 1.2 per cent lower at 7,314.
In Asia, Japan's Nikkei closed down 0.5 per cent at 19,362.55. The Japanese yen was holding up well too as it often does in times of geopolitical stress - the dollar was down 0.7 per cent at 108.49 yen. Elsewhere in Asia, Australia's S & P/ASX 200 dipped 0.7 per cent to 5,669.00 while South Korea's Kospi lost 0.2 per cent to 2,364.74. Hong Kong's Hang Seng shed 0.1 per cent to 27,828.67, but the Shanghai Composite inched up 0.1 per cent to 3,365.23.
US stocks also followed other global market indexes. The Standard & Poor's 500 index fell 0.4 per cent to 2,433 points at the opening while the Dow Jones industrial average and the Nasdaq composite dropped 0.3 per cent and 0.5 per cent, respectively.
Currencies
The euro has been buoyant for a while now, benefiting from the stronger-than-anticipated economic recovery taking place in the 19-country Eurozone as well as rising expectations that the European Central Bank will start to rein in its stimulus measures soon.
Naqvi said the euro is possibly coming in for a profit correction given its run-up this year.
Valecha predicted a continuation in the decline of the US dollar and appreciation of safe-haven currencies such as the Japanese yen and Swiss franc.
Dr Marie Owens Thomsen, global head of economic research for Indosuez Wealth Management, said the greenback is now trading perilously close to what can be considered the frontier between a strong and a weak dollar.
"Stronger currencies will dampen any advances in the stock markets in these regions," she said, adding that gold currently trades at $1,320/oz and the next major resistance level is around $1,350/oz which is a reasonable end-year target unless markets return to a confident risk-on mode.
Hussein Sayed, chief market strategist at FXTM, said gold prices are likely to remain well-supported. "$1,300 has been a critical resistance level since the beginning of the year, with four failing attempts to break through; after yesterday's surge, however, $1,300 will likely turn into support," he added.
He, however, said investors have become sensitised to such actions by the North Korean regime.
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