The Iran conflict, now in its third week, continues to dampen investor sentiment in the UAE, with analysts warning that a prolonged war could point to broader economic uncertainty across Gulf markets.
Vijay Valecha, chief investment officer at Century Financial, said the recent market slide over the past eight to 10 days has made investors more cautious as they track rising tensions. He warned that if the conflict stretches to four weeks, the pressure would likely spread beyond the UAE to wider GCC markets.
UAE stocks remained under pressure in early Monday trade, while Ahmad Assiri, research strategist at Pepperstone, said the geopolitical turmoil is forcing investors to reassess regional risk and driving up volatility, with confidence increasingly tied to the stability of trade routes.
Although analysts say the UAE remains in a strong position thanks to solid fiscal fundamentals, Valecha noted that if the conflict drags on in the coming weeks, the impact on equity markets could broaden.
He added that continued geopolitical tensions may curb foreign investment and keep volatility elevated, especially in sectors linked to global trade and tourism, including aviation, banking and real estate.
Since the conflict began, the Dubai Financial Market and Abu Dhabi Securities Exchange indices have fallen nearly 18% and 11%, respectively. Property and infrastructure stocks have been hit hardest, with Emaar Development down 20.1% and Emaar Properties losing 19.7%.
Nigel Green, CEO of deVere Group, said the extended conflict is pushing investors toward capital preservation, leading many to cut short-term exposure as volatility rises.
While materials and consumer discretionary stocks have posted modest gains, most sectors on both exchanges have moved lower. Valecha said real estate has been the weakest-performing segment, falling 17.86% on the DFM, in line with sharp losses in major developers.
A similar trend has emerged in Abu Dhabi, where most sectors ended the week lower. Real estate stocks posted the steepest decline, dropping 21.4%, making them the weakest performers on the ADX.
Valecha said the sell-off in UAE equities appears to be driven more by risk aversion than by any fundamental reassessment of the economy.
Analysts also said the market downturn has brought valuations lower in some blue-chip names, creating selective long-term opportunities.
Assiri said the recent pullback has opened the door for long-term investors, particularly in the financial sector, where declines may prove temporary given the sector’s solid fundamentals.
Rania Gule, senior market analyst at XS.com MENA, said many UAE-listed companies still trade at attractive valuations, with average price-to-earnings ratios in some sectors ranging from 12 to 15 times, which compares favorably with several emerging markets.
She added that investors with a longer horizon could benefit from these valuations, especially in companies with strong balance sheets and stable cash flows. Continued infrastructure expansion and steady economic growth in the UAE could also support a gradual re-rating of such stocks over time.
Even as the possibility of the conflict entering a fourth week weighs on sentiment, analysts say the UAE’s strong economic fundamentals should help prevent a deeper downturn.
Green said that if the conflict continues, the more likely outcome is prolonged volatility rather than a sustained market sell-off.
Still, Valecha warned that if the war remains unresolved in the weeks ahead, UAE equities may stay under pressure, with sectors exposed to trade and tourism remaining especially vulnerable.
He added that a conflict lasting more than six months could hurt not only the UAE but also other Gulf economies, given the region’s interconnected financial markets and reliance on international capital, potentially undermining confidence in major financial hubs such as Dubai, Abu Dhabi, Riyadh and Doha.
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