Markets to stay defensive due to Syria

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Regional bourses are set for a third day of losses on Wednesday as markets around the world prepare for a possible U.S. military strike against Syria, which it blames for last week’s chemical weapons attacks.

U.S. Defense Secretary Chuck Hagel said American forces int he region were “ready to go” if President Barack Obama gives the order. Asian equities are at a seven-week low and MSCI’s emerging market index is down 1.0 percent on Wednesday morning.

After Tuesday’s sharp losses, retail investors in the Gulf may continue selling to lock in some of this year’s big gains, while margin calls may once more weigh on markets such as Dubai, which tumbled 7.0 percent on Tuesday.

However, many analysts believe Tuesday’s retail investor-driven panic in the Gulf was overdone because local economies are strong; because of their current account and budget surpluses, and currency pegs to the U.S. dollar, they are much better insulated than most regions from the problems in emerging markets globally.

Also, it is not clear that an escalation of the war in Syria would have any direct political or military impact on the Gulf, where some governments including Saudi Arabia have already been supporting the Syrian rebels.

Dubai’s index, which sank to 2,550 points on Tuesday, has immediate chart support at the 2,500-point level, where the market peaked in June and found support in July. Another major support is the 100-day average, now at 2,336.

Brent crude oil prices have advanced 1.8 percent to a six-month high of $116.37 a barrel in response to the Syrian news, extending Tuesday’s 3.3 percent surge - a positive factor for Gulf petrochemical shares.

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