UAE bourses, regional markets bonds fall after Israel strikes Iran
DUBAI: Markets in the United Arab Emirates, the Israeli shekel and some government bonds across the region came under pressure on Friday after Israel launched widescale strikes against Iran, raising the prospect of more turmoil ahead.
Israel said on Friday it had targeted nuclear facilities, ballistic missile factories and military commanders and that this was the start of a prolonged operation to prevent Tehran from building an atomic weapon.
Iran has launched about 100 drones towards Israeli territory in retaliation, which Israel is working to intercept.
Dubai's main share index was down 5.1% in early trade, its biggest intraday fall since May 2022, while Abu Dhabi's main index fell 3.5% at open before recovering some ground.
The two indexes were down 2% and 1.5% respectively by around 0855 GMT.
Air Arabia shares in Dubai were down 4.1%, as airlines cleared out of the airspace over Israel, Iran, Iraq and Jordan after the Israeli strikes, scrambling to divert and cancel flights.
Other bourses across the Gulf, including Saudi Arabia and Qatar, were closed on Friday and were set to hold their first trading session after the attacks on Sunday.
"Equity markets, especially in the region, are very sensitive to geopolitical events as individual investors are a key player in it," said Mohammed Ali Yasin, the chief executive of Ghaf Benefits at asset manager Lunate in Abu Dhabi.
Oil prices surged more than 6%, hitting their highest in almost five months and the largest intraday moves for both Brent crude futures and U.S. West Texas Intermediate crude contracts since 2022.
"So far the rise in the oil prices hasn't been too extreme," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
"If we see oil prices moving towards $80 and above then that becomes more of an issue for global central banks."
Long-dated dollar bonds for Israel, Egypt and Pakistan slipped on Friday, and Israel's shekel tumbled as much as 3.5% against the dollar in early trading.
It was currently trading down around 1% and on track for its biggest weekly drop since July last year.
"There is a lot more room for widening (of sovereign bond and credit spread) if this escalates," said one buy-side analyst in London who requested anonymity, adding it was more significant than the situation in Gaza, where Israel is fighting a war against the Palestinian militant group Hamas.
Investors also headed towards safe-haven assets, with gold prices climbing to their highest levels in nearly two months.
"We do expect market volatility in the Middle East to continue as political instability remains the key factor affecting investors' sentiments," said Tariq Kakish, deputy CEO at FH Capital in Abu Dhabi.
He added, however, that previous confrontations between Iran and Israel had a short effect on markets.
"We believe this will have a similar pattern," he said. (Reporting by Federico Maccioni and Hadeel Al Sayegh in Dubai, Marc Jones, Libby George and Dhara Ranasinghe in London, and Mohd Edrees in Bangalore; editing Alex Richardson and Saad Sayeed)
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