The ongoing Iran conflict, now in its third week, continues to dampen investor sentiment in the UAE, with analysts warning that a prolonged war could heighten economic uncertainty across Gulf markets.
“Market declines over the past 8 to 10 days have made regional investors more cautious as they track developments. If the conflict stretches to four weeks, it could place further pressure not just on UAE markets but across the GCC,” said Vijay Valecha, Chief Investment Officer at Century Financial.
UAE equities were trading lower in early Monday sessions, with Ahmad Assiri, Research Strategist at Pepperstone, noting that persistent geopolitical tensions are driving a reassessment of regional risks and increasing volatility, with investor confidence closely linked to the security of trade routes.
Although analysts maintain that the UAE remains fundamentally strong due to its solid fiscal position, Valecha cautioned that a prolonged conflict could have broader repercussions for equity markets.
“Continued geopolitical uncertainty may deter foreign inflows and sustain elevated volatility, particularly in sectors linked to global trade and tourism such as aviation, banking, and real estate,” he said.
Sector performance
Since the onset of the conflict, the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) indices have declined by nearly 18% and 11%, respectively. Property and infrastructure stocks have been the hardest hit, with Emaar Development falling 20.1% and Emaar Properties dropping 19.7%.
“Geopolitical tensions typically push investors toward capital preservation, which is evident as the conflict persists,” said Nigel Green, CEO of deVere Group. “Volatility has risen, prompting many investors to scale back exposure in the near term.”
While some segments like materials and consumer discretionary posted modest gains, most sectors on both the DFM and ADX ended lower.
“Real estate has been the weakest-performing sector, down 17.86%, reflecting significant selling pressure in property developers,” Valecha noted, citing declines in major stocks like Emaar Development and Emaar Properties as key contributors to the DFM’s drop.
A similar trend was observed in Abu Dhabi, where most sectors closed in negative territory, with real estate stocks plunging 21.4%, making it the worst-performing segment on the ADX for the week.
Valecha attributed the broad sell-off in UAE equities primarily to risk-driven sentiment rather than any fundamental deterioration in the economy.
Valuations in focus
Analysts highlighted that recent volatility has led to some easing in valuations, creating selective opportunities for long-term investors.
“Market pricing has adjusted, offering potential entry points, particularly in the financial sector where declines tend to be short-lived and supported by strong fundamentals,” Assiri said.
Rania Gule, Senior Market Analyst at XS.com MENA, added that many UAE-listed firms continue to trade at attractive valuations, with average price-to-earnings ratios in some sectors ranging between 12 and 15 times—competitive relative to other emerging markets.
“Over the long term, these valuation levels could benefit investors, especially in companies with strong balance sheets and consistent cash flows,” she said. “Ongoing infrastructure expansion and steady economic growth in the UAE may also support gradual re-rating, offering solid long-term return potential.”
While the possibility of the conflict extending into a fourth week continues to weigh on sentiment, analysts stress that the UAE’s strong economic fundamentals should help limit deeper losses.
“If the conflict persists, markets are more likely to remain volatile rather than experience a sustained downturn,” Green said.
Valecha added that if tensions fail to ease in the coming weeks, UAE equities could stay under pressure.
“Persistent geopolitical risks may keep foreign investment subdued and volatility elevated, particularly in sectors tied to global trade and tourism,” he warned. “If the conflict extends beyond six months, it could have broader negative implications not only for the UAE but for the wider Gulf region, given the interconnected nature of financial markets and reliance on international capital. Prolonged instability could weaken investor confidence in key regional hubs such as Dubai, Abu Dhabi, Riyadh, and Doha.”
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