Nearly two-thirds of investors in the UAE believe the stock markets will rise this year on a steady economy, a survey has found.

The Franklin Templeton Global Investor Sentiment Survey included the UAE in the global survey for the first time, indicating the market’s growing role on the international stage. More than 11,500 investors in 23 countries across the Americas, Africa, Asia Pacific and Europe were surveyed.

“The UAE continues to benefit from its long-standing policy of diversification away from oil,” said Bassel Khatoun, the head of Mena Equity at Franklin Templeton Investments Middle East. “It has shown remarkable development as a tourism destination, a trade hub and a financial centre. There are also encouraging signs of regulatory reform, including the recently announced Companies Law, which will facilitate further IPO activity.

“This follows from the UAE’s successful upgrade to MSCI Emerging Markets status last year. We continue to find high-potential, compelling investment opportunities in these markets.”

Although investor remained positive towards the stock markets, they were a bit wary about the oil price decline.

The IMF expects the UAE’s economy to grow 3.2 per cent this year, a decrease of 0.3 percentage points against its January forecast because of falling oil prices. However, Tim Fox, the head of research and chief economist at Emirates NBD, said that this downgrade occurred when oil prices were already heading higher. “This provides us with a sense that the worst may have been behind us when the IMF’s forecasts were updated.”

Brent was trading at US$65.56 a barrel in early afternoon trading, significantly higher than the low of $46.59 reached in January this year.

“What we are seeing is a broad mix of indicators pointing to positive sentiment from UAE investors, albeit with the price of oil weighing on this sentiment,” said Dhiraj Rai, the director at Franklin Templeton Investments. “Despite this tempered view, we are particularly encouraged by the fact that investors in the UAE are overwhelmingly optimistic that they will reach their financial goals.”

Property topped the list of UAE investors’ most favoured asset class, with 67 per cent said to favour it this year, followed by stocks at 47 per cent and precious metals coming in at 39 per cent.

Sharia-compliant investment is also garnering significance among investors in the UAE, with 79 per cent expressing interest in the space.

“With more than 1.5 billion Muslims worldwide, representing approximately one-fifth of the world’s total population and growing at the fastest rate among all major religious groups, the fundamental case for Islamic finance is compelling,” said Mohieddine Kronfol, the chief investment officer for global sukuk and Mena fixed income at Franklin Templeton.

“While the industry evolved initially as an alternative form of financial intermediation, primarily to meet Muslims’ desire for Sharia-compliant investments, it is now a complete and integral component of the mainstream global financial system.”

Separately, in Saudi Arabia, Middle East fund managers have become bearish on the region’s biggest stock market after oil’s rally ran out of steam and the kingdom confirmed strict rules on foreign investment, a monthly Reuters survey showed.

The survey of 15 leading investment companies, conducted over the past 10 days, showed no company expected to raise its equity allocation to the Middle East in the next three months – the first time this has been recorded since the survey was launched in September 2013.

Last month, 33 per cent of respondents said they planned to increase their equity allocations. The proportion intending to cut equity allocations has risen to 20 per cent from 7 per cent.

Also, falling trading volumes and thin corporate news flow indicate that markets are already slipping into a summer lull.

During Ramadan, which is expected to start on June 18 this year, activity usually declines even further.

Fund managers are particularly negative on Saudi Arabia, with 27 per cent planning to cut their allocations in the next three months and just 7 per cent planning to increase them. This compares with 13 per cent planning to increase allocations and the rest seeing them stable in April.

Saudi Arabia’s stock market is particularly sensitive to oil price movements, as petrochemical companies account for almost a quarter of market capitalisation.