Why has the United Arab Emirates closed its stock exchanges? | News from the financial markets

The United Arab Emirates has closed its main stock exchanges amid escalating conflict in the region following US and Israeli attacks on Iran.

The United Arab Emirates’ financial regulator announced on Sunday that its key exchanges in Dubai and Abu Dhabi would not reopen immediately after the weekend break amid the fallout from the US and Israeli strikes that killed Iran’s Supreme Leader Ayatollah Ali Khamenei.

The announcement that the Abu Dhabi Stock Exchange and Dubai Financial Market would remain closed on Monday and Tuesday came after the United Arab Emirates suffered hundreds of Iranian missile and drone attacks, including an attack on Abu Dhabi’s main airport that killed one person and injured seven others.

The UAE Capital Markets Authority said in a statement that it would continue to monitor developments in the region and “assess the situation on an ongoing basis, taking any additional measures as necessary.”

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Why has the United Arab Emirates decided to close its main stock exchanges?

The financial regulator did not provide further details on the basis for its decision, only saying that it was made in accordance with its “supervisory and regulatory role” in the management of the country’s financial markets.

While closing the stock market outside of scheduled breaks is relatively unusual around the world, especially in the era of electronic trading, it is unprecedented.

Typically, when financial authorities suspend stock trading during a crisis, it is because they are worried about panic selling.

During periods of extreme volatility, such as wars and financial crises, investors often rush to sell their holdings to avoid suffering large losses.

As investors sell their shares, the market value falls further.

This dynamic can trigger a vicious cycle that, if left unchecked, can lead to a complete market crash.

Since the US and Israeli attacks on Iran, stock markets around the world have experienced significant – although not catastrophic – losses, while oil prices have risen sharply.

Saudi Arabia’s benchmark Tadawul All Share index fell more than 4 percent on Sunday, while Egypt’s EGX 30 fell about 2.5 percent.

In Asia, major stock markets closed lower on Monday, with Japan’s benchmark Nikkei 225 index and Hong Kong’s Hang Seng index falling about 1.4 percent and 2.2 percent, respectively.

The practice of closing the market to prevent panic selling is controversial among economists and investors.

Closing the market prevents investors from accessing the cash they might need quickly.

Critics also argue that such closures only exacerbate the sense of panic they seek to prevent and distort important signals about the market.

“Investors don’t like uncertainty, and in times of market stress, liquidity is the most important thing. It seems like the UAE just took it away from them,” Burdin Hickok, a professor at New York University’s School of Professional Studies, told Al Jazeera.

“This move has the potential to diminish Dubai’s status as a truly major market and weaken investor confidence in Dubai markets. There has to be some concern about capital flight and negative effects.”

Has this happened before?

The United Arab Emirates has closed its stock exchanges before, although not because of a regional conflict.

In 2022, the United Arab Emirates suspended trade as part of a declared period of mourning over the death of President Khalifa bin Zayed Al Nahyan.

The emirate announced a similar pause following the death of Dubai ruler Sheikh Maktoum bin Rashid Al Maktoum in 2006.

“Historically, as far as I know, no Middle Eastern state, including Israel, has closed its stock exchange during a time of regional conflict,” Hickok said.

“In previous conflicts, Israel has modified the times of its exchange, but we are talking about hours, not days.”

Other countries have closed their stock markets during periods of great turmoil in recent years.

After Russia launched its full-scale invasion of Ukraine in 2022, authorities closed the Moscow Stock Exchange for almost a month.

In 2011, Egypt closed its stock exchange for nearly two months as the country dealt with the turmoil of the Arab Spring.

After the September 11, 2001 attacks in the United States, the New York Stock Exchange and Nasdaq halted trading for six days, the longest suspension since the Great Depression.

How important is the UAE stock market?

The United Arab Emirates is a relatively small player in the world of capital markets, although it has made significant progress in recent years.

The Abu Dhabi Stock Exchange and Dubai Financial Market have a combined market capitalization of around $1.1 trillion.

By comparison, the New York Stock Exchange, the world’s largest stock exchange, has a market capitalization of about $44 trillion.

The Saudi Stock Exchange, the largest exchange in the Middle East, is valued at more than $3 trillion.

Still, the UAE’s importance among financial markets has been increasing.

Before the latest crisis, UAE-listed stocks had been on a winning streak.

The Dubai Financial Market General Index, which includes companies such as Emirates NBD and Emaar Properties, rose more than 29 per cent in the 12 months to February 27.

Haytham Aoun, assistant professor of finance at the American University of Dubai, said that while the United Arab Emirates could see some outflow of foreign capital, the country’s economy remains on solid footing.

“A temporary shutdown of the stock market will have a limited impact on long-term economic variables, as long as the fundamentals remain strong,” Aoun told Al Jazeera.

“In the case of the United Arab Emirates, this is a preventive intervention and not a sign of structural weakness.”