Investment Review №345. Treasuries vs Stocks

DFM General Index: 1-Year Dynamics

 

Abu Dhabi Securities Exchange Index: 1-Year Dynamics

 

Brent Oil, 1-Year Dynamics

 

 

Between May 4 and 18, 2026, UAE equities traded predominantly in negative territory amid weaker oil prices and persistent geopolitical tensions across the region. The DFM index declined 2.9%, from 5,780 to 5,610, while the ADX index fell 2.6%, from 9,821 to 9,561. By comparison, the S&P 500 gained 2.8% over the same period, rising from 7,201 to 7,403. Brent crude corrected 1.9%, from $114/bbl to $112/bbl, pressured by OPEC+’s latest scheduled production quota increase, although continued uncertainty surrounding the Strait of Hormuz limited the downside. On May 4, regional military escalation resumed with the first direct strike on UAE territory since the conditional ceasefire between the U.S. and Iran took effect on April 8. The UAE imposed airspace restrictions through May 11 and shifted all schools nationwide to remote learning between May 5–8. The final major military incident during the period occurred on May 17–18, when a drone of unidentified origin struck an external power generator at the Barakah nuclear plant. No radiation abnormalities were reported.

Sector performance over the two-week period remained broadly negative. Industrials (−6.45%) and Real Estate (−5.80%) were the weakest segments, while Financials (−2.0%) and Communication Services (−1.59%) showed relative resilience, supported by solid 1Q26 corporate earnings. Industrials emerged as the clear laggard. Dubai Investments (−7.65%) reported stable but soft 1Q results, with the market reading the print as a signal of slowing momentum across its diversified development and manufacturing portfolio. Air Arabia (−6.76%) was hit by direct conflict spillovers: regional route closures reduced passenger traffic to 4.7m (−5% YoY), while 1Q net profit fell to $76m (−22% YoY). The Real Estate sector corrected despite exceptionally strong underlying fundamentals. RAK Properties (−14.22%) was the worst performer in the segment, reflecting its higher exposure to UAE markets outside Dubai and Abu Dhabi (notably Ras Al Khaimah). Geopolitical uncertainty weighed most heavily on peripheral residential demand, where foreign buyer concentration is typically elevated.

The UAE proxy sovereign yield rose sharply from 4.30% to 4.99%, while 10Y U.S. Treasuries increased from 4.50% to 4.74%. The UAE–U.S. spread widened from −20bps to +25bps, indicating a clear repricing of sovereign risk, with investors now demanding a higher risk premium for UAE exposure amid escalating geopolitical tensions.

Economic Updates

• The UAE economy continues to show resilience. According to the Minister of Economy and Tourism, Al Marri, the national economy remains strong, maintaining steady growth rates and demonstrating a high capacity to adapt flexibly to geopolitical shocks. The 2026 GDP growth outlook was set at >3.1% based on estimates from international institutions, incorporating the impact of the regional conflict. While this is meaningfully below pre-crisis expectations, the key message was the absence of material capital outflows. Over the “40-day crisis” period, the UAE reportedly saw only minimal outflows. This narrative helped support investor confidence throughout the period.
• ADGM and AUM growth: a structural signal of capital markets strength. In April–May 2026, Abu Dhabi Global Market (ADGM) attracted firms managing ~$4.4tn in assets (March–April 2026 data), while AUM within ADGM rose 57% YoY in Q1 2026. These figures underscore sustained institutional interest in Abu Dhabi as a regional financial hub, representing a structural positive for wealth management and banking franchises with exposure to asset management flows.
• West-East Pipeline: a strategic response to the Strait of Hormuz crisis. On May 15, the Crown Prince of Abu Dhabi, Sheikh Khaled bin Mohamed bin Zayed Al Nahyan, directed ADNOC to accelerate construction of the West–East Pipeline, which is designed to double the company’s export capacity via Fujairah, bypassing the Strait of Hormuz. The pipeline remains under construction, with commissioning scheduled for 2027. It represents a direct structural response to the risk of a prolonged closure of the Strait, materially reducing the vulnerability of UAE oil exports and strengthening Fujairah’s position as a global oil trading hub once fully operational.
• Infrastructure boom in Abu Dhabi. Abu Dhabi is leading what is described as the largest infrastructure spending cycle over the next four years, with plans to expand rail and metro networks. On May 15, the UAE President met with the Prime Minister of India, with the outcome including ~$5bn in Indian investment intentions into the UAE. Overall, the period reinforced the UAE’s strategy of actively diversifying diplomatic and investment ties amid ongoing regional crisis conditions.
• Dubai real estate: resilience with signs of cooling. Updated April data show a softening in the secondary market, with transaction volumes down 13% MoM and 55% YoY, while rental demand surged ~40% MoM. According to Moody’s, the UAE property market is cooling, although developers are better positioned than in previous cycles. Despite the regional conflict, 59 new development projects were launched across the UAE, with a combined value of $32.2bn.

Corporate News

• Consolidated results across listed ADNOC companies. Aggregate 1Q26 results across ADNOC’s six listed entities—ADNOC Distribution, ADNOC Drilling, ADNOC Gas, ADNOC L&S, Borouge, and Fertiglobe—were strong. In particular, ADNOC Distribution delivered record quarterly EBITDA of $307m (+12% YoY) and net profit of $210m (+21% YoY) on revenue of $2.4bn, while fuel volumes reached a record 1Q level of 3.82bn liters (+2.4% YoY). ADNOC L&S increased EBITDA by 7% YoY and net profit by 20% YoY.
• ADNOC Gas (ADX: ADNOCGAS). ADNOC Gas reported 1Q26 net profit of $1.1bn, down only 8% QoQ, which management characterized as resilient performance amid heightened regional uncertainty and severe disruption across the Energy sector following the closure of the Strait of Hormuz. The board approved a quarterly dividend of $941m payable in June 2026 and reaffirmed FY26 net income guidance. ADNOC Gas also plans to restore 80% of the damaged Habshan complex by end-2026, signaling partial normalization of the group’s operating capacity.
• ADNOC Drilling (ADX: ADNOCDRILL). ADNOC Drilling reported 1Q26 revenue of $1.23bn (+5% YoY) and net profit of $347m (+2% YoY), exceeding market expectations. Against the backdrop of ADNOC’s $55bn investment program for 2026–2028, ADNOC Drilling remains one of the key beneficiaries of rising upstream exploration and production spending in the UAE.
• Emaar Properties (DFM: EMAAR). Emaar Properties delivered strong 1Q26 performance, with revenue up 23% YoY, EBITDA increasing 34% YoY, and pre-tax profit rising 33% YoY. UAE property sales reached $5.5bn (+22% YoY), while backlog totaled $44.5bn, supporting strong revenue visibility for the coming years. The Mall & Retail segment reached 98% occupancy, while hospitality revenue totaled $272m. Despite the strong fundamentals, Emaar Properties shares declined 6.33% during the period, while Emaar Development fell 5.25%, reflecting broader rotation out of the Real Estate sector.
• AD Ports Group (ADX: ADPORTS). AD Ports Group posted record quarterly results, with revenue increasing 25% YoY (entirely organic), EBITDA rising 33% YoY, net profit growing 41% YoY, and profit attributable to shareholders up 43% YoY. Growth was driven primarily by the Maritime & Shipping and Economic Cities & Free Zones clusters, while the company maintained its FY26 guidance for growth, profitability, and CapEx.
• Air Arabia (ADX: AIRARABI). Air Arabia reported 1Q26 results with net profit down 22% YoY on modest revenue growth. Passenger numbers declined to 4.7m (-5% YoY) due to route disruptions following regional conflict-related airspace restrictions, although load factor improved to 86% (+2pp YoY). The results confirm direct earnings pressure in the aviation sector from geopolitical disruption, driven by network contraction and lower passenger volumes.
• Emirates NBD (DFM: ENBD). Indian regulators granted final approval for Emirates NBD to acquire a 51–74% stake in RBL Bank via a ~Dh11bn ($3bn) investment, marking the largest direct foreign investment in India’s banking sector. Originally announced in October 2025, the deal positions Emirates NBD among the first foreign banks to secure a controlling stake in a profitable Indian lender.

Two-Week Outlook

High uncertainty in the oil market persists, with the key pricing driver remaining the scenario around the Strait of Hormuz. A renewed escalation in hostilities could push WTI above $110/bbl, while de-escalation and reopening of the Strait would likely trigger a sharp correction in prices. Under the current “dual blockade” regime—the most probable near-term scenario—oil prices are expected to trend gradually higher.

In the near term, three key drivers will dominate UAE market dynamics: oil price trajectory and the Strait of Hormuz scenario, 2Q26 corporate earnings momentum across key benchmarks, and the speed of normalization in geopolitical risk premia across local assets.

In the base case, strong earnings from ADNOC-linked entities, utilities, and logistics companies, combined with accelerated infrastructure execution, should continue to support large-cap UAE equities. The Energy sector structurally benefits from OPEC+ quota adjustments in a stable-to-rising price environment, while infrastructure names are supported by accelerating progress on the West–East Pipeline project.

In a risk-off scenario, higher global rates or an unexpected de-escalation in the Middle East would likely drive rotation into defensive names and further index consolidation.