Nervous foreign investors pull out funds from Dubai bourse

The foreign institutional investors are quietly pulling out funds from the Dubai Financial Market (DFM), with four major scrips alone seeing a decline in foreign ownership in the past week.

Foreign investors have estimated to have pulled out nearly Dh1 billion from the DFM in the first week of July from the four counters. However, during the same period, some scrips have seen an increase in foreign shareholding. The sentiments of the foreign investors are mainly driven by the turmoil in the global stock markets and also the geo-political tensions, especially the US-Iran standoff, according to market watchers, who add some investors think it is time to book some profit, with losses in markets elsewhere.

The official DFM report for the week (June 29-July 3) showed that the value of shares bought by foreign investors (or non-UAE nationals) reached Dh1.88 billion, comprising 27.7 per cent of the total value of stocks traded during the period.

The value of stocks sold by foreign investors reached Dh2.66bn, comprising 39.1 per cent of the total value of stocks traded during the period. Net foreign investment on the market reached Dh773.6m during the same period, as aggregate sell.

The value of stocks bought by institutional investors during last week reached Dh1.520bn comprising 22.3 per cent of the total value of stocks traded on Dubai bourse during the period.

Air Arabia has seen a major drop in foreign ownership of 2.02 per cent, while Emaar Properties has seen 0.92 per cent decline. Arabtec has reported a 0.5 per cent decline on the foreign ownership and Amlak has seen a nominal 0.1 per cent decline.

While some others such as Dubai Islamic Bank have seen a rise in foreign ownership of 0.3 per cent, and Tamweel has reported 0.18 rise in foreign ownership.

The official DFM report for the week (June 29-July 3) showed that the value of shares bought by foreign investors reached Dh1.88bn, comprising 27.7 per cent of the total value of stocks traded on the DFM during the period.

Last year, the Western institutional investors played a key role in rallies on the stock markets. The robust appetite for emerging market exposure led to strong Western institutional inflows, and was further supported by a number of companies increasing the number of shares open to foreign investors.

The UAE has benefited from the credit turmoil in the United States as further funds were redirected towards emerging markets in general and the region in particular. The correlation between the UAE and emerging markets has historically been weak. However in recent months a positive and rising trend was seen, said market experts.

Julian Bruce, Institutional Sales, EFG-Hermes Brokerage, told Emirates Business that there are two main reasons for the decline in interest from foreign institutional investors as the regional bourses and the global counterparts are witnessing massive in values.

"As the market is drifting on, foreign investors are adopting a wait-and-watch attitude and are buying slowly and cautiously," said Bruce.

The regional stocks markets offer a lot of opportunities for the foreign investors.

He believes that a lot of Mena and GCC focused funds, launched in Europe this year, has started investing in the region. The underlying fundamentals in the GCC is strong.

But he said that the UAE and GCC stock markets have a strong correlation with the global market, and what happens there will have an impact locally. He expected the good second quarter corporate results, following a strong performance in the first quarter, will aid investor sentiments.

Mohammed Yasin, managing director at Shuaa Securities, said the role of the foreign investors should be seen as a part of additional liquidity for the market, not as a major liquidity driver.

"The foreign investors cannot be the driving force of the market. At present, local institutional investors are playing a secondary role," he said, adding that the local institutions should play a more active role in boosting the market sentiments.

According to Yasin, there is nothing wrong with the economic fundamentals, but investor sentiments is weak. "Even if oil prices drop a bit from the current highs, it will unlikely to impact the economy."

The number

0.3%: The rise in the foreign ownership of Dubai Islamic Bank. Tamweel experienced 0.18 increase in foreign ownership. However, Emaar Properties, Arabtec and Amlak registered a decline in the foreign ownership


Optimistic managers

Seventeen months of spiralling oil prices and top performance by regional stock markets have left fund managers in the Middle East and North Africa still optimistic but cautious about the threat from imported inflation, says Standard & Poor's in its latest report.

"Some of the regional markets experienced volatility following sharp gains in April," said S&P Fund Services analyst Irina Schoenberg, pointing to Saudi Arabia, where stock prices fell across several sectors, resulting in a drop of 13.7 per cent till date.

Oman was the best performing market with a return of 27.9 per cent, followed by Qatar (24.1 per cent), gaining from interest from foreign investors plus a robust earnings growth outlook. Kuwait (19.6 per cent) and Abu Dhabi (13 per cent) also registered double digit returns.

"Regional and international investors generally remained cautious and in a profit-taking mode in the absence of any positive news flow," said Schoenberg, noting that mixed signals regarding improvement in the global economy and stock markets had led to a more cautious undertone in the markets. On the more bearish side, high inflation and uncertainty surrounding government macroeconomic policies continued to affect the performance of the Egyptian market, which lost 6.2 per cent in May 2008 (+5 per cent YTD).

Overall, the fund managers interviewed by S&P Fund Services remain optimistic on the outlook for the region. At EFG-Hermes in Dubai, the team sees the macroeconomic fundamentals for the region as robust, with oil prices near $140 a barrel. This is driving investment and infrastructure spending, which is being reflected in earnings growth.

With GCC countries planning their fiscal budgets on $55 per barrel, the team feels there is a significant buffer should oil prices soften.

The only concern is inflation: with most GCC currencies pegged to a weak dollar, inflation has been rising to record levels.

EFG-Hermes said infrastructure spending will continue unabated and is therefore favouring real estate and materials, in addition to the petrochemicals sector.

The UAE and Saudi Arabia remain the favoured markets, while Kuwait, Qatar and Egypt were favoured on a more selective basis.

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