Brokers were caught off guard yesterday as the UAE stock markets fell by more than 340 points between them.
This sudden decline was largely unexpected, with the Dubai and Abu Dhabi exchanges extending their losses for a third session.
There could be further bad news as some analysts warn the markets may not recover for a week or more.
Yesterday’s decline was more pronounced on the Dubai Financial Market General Index (DFMGI), which plunged 3.17 per cent to 5,868 points, while the Abu Dhabi Securities Market was not far behind, losing 3.12 per cent to 4,692.
The DFM’s own stock plunged 6.2 per cent, which means it has lost 17.6 per cent over the past three sessions, while du fell 0.89 per cent.
“This was an unexpectedly sharp downturn and one that cannot be justified either from a technical, strategic or macroeconomic point of view,” said Wadah Al Taha, Emaar Financial Services head of research.
“Technically any decline should have been no more than half the size of the one that did occur. Most of the GCC markets closed down, while Saudi Arabia, which is the largest in the region, fell by more than seven per cent, so this downturn must have been caused by geopolitical factors that have yet to become apparent,” Al Taha said.
Mohamed Alami, Naeem Shares and Bonds relationship manager, offers a different explanation. “After Thursday’s declines we were expecting the market to fall yesterday, but I can’t claim I saw the markets going down before then,” Alami said.
“There’s something called the Elliott Wave and, according to this, Dubai will probably move sideways above the 5,850-point mark for the next few days before moving up again. But this will not be an aggressive advance,” he said. Alami described yesterday’s correction as “perfect” and he believes it will strengthen the market.
Meanwhile, Al Taha remains convinced the UAE markets will recover once the unknown geopolitical factor is resolved.
He dismissed claims the UAE’s woes were related to a wider downturn in major markets across the globe. “I have run the correlation matrix and there is no direct relationship,” said Al Taha.
“For investors, it will be better to hold onto their stocks for the time being because the markets probably have further to fall before recovering.
“The markets might not fall continuously, but will probably move in an overall downward trend for the time being.”
Investors will have to keep their wits about them to avoid buying stocks that may be turn out to be in freefall.
Alami said: “While the market has corrected to within safe boundaries, many stocks did not, and broke through significant support barriers.
“Investors will have to be especially careful because we’re in the middle of the results season, which is a volatile time.
“There will be excitement and disappointment in equal measure.”
Al Taha predicts investors will target particular stocks at key price levels and this buying will end any fears of the UAE markets repeating the turmoil of 2006 when the exchanges lost more than 40 per cent of their value following a phenomenal bull run.
“This time the markets are much more mature,” said Al Taha.
From a technical point of view, DFM’s retreat from a high of 6,291 points to yesterday’s close represents a Fibonacci score of 61.8, with the market falling back to its November 7 high.
This Fibonacci number provides a very high probability that the market will rebound in the medium term.
“If the market were to fall another one per cent or more this would be very bad news,” Alami added.
Abu Dhabi energy stocks corrected as predicted on these pages yesterday, but the downturn was more severe than anticipated.
Taqa fell 4.49 per cent, while Dana Gas and Aabar Petroleum lost 4.76 and 2.92 per cent respectively.
The latter may have further to fall because it has been trading at 90 times its earnings of late.
While the energy slump was expected, few were braced for a similar decline in the capital’s real estate stocks. Aldar Properties shed 3.48 per cent to close on Dh11.10, which means it has lost 14.9 per cent since posting an all time high of Dh13.05 on December 25.
Meanwhile, Sorouh Real Estate fell by 2.2 per cent and Rak Properties by 5.61 per cent.
Dubai and Abu Dhabi stock markets plummet