The UAE stock markets slumped to their lowest closes for more than a month yesterday as global economic gloom darkened sentiment on the domestic exchanges.
Brokers have been vociferously urging investors to ignore the tumult of economic news emanating from the United States, but this advice was ignored yet again yesterday. With the sub-prime crisis rapidly descending into outright US recession, confidence among UAE investors has plummeted, despite the buoyant local economy.
The Saudi bourse lost almost 200 points on Saturday, sparking an immediate sell-off when markets in the UAE reopened after the weekend. This saw the Dubai Financial Market General Index drop 1.36 per cent to 5,675, which represents a fall of 78 points to its lowest close on February 13.
Things could have been much worse, with Dubai bourse down more than 100 points just after the mid-session mark, but a stuttering late rally helped it recoup some of these losses.
The Abu Dhabi Securities Market (ADSM) declined 1.07 per cent to 4,682 points, the capital’s lowest finish since January 31.
“Yesterday there was strong selling pressure, especially from foreign institutions and little buying as investors wait for prices to fall further,” said Alaa El Din Moustafa, EFG-Hermes chief dealer.
Worryingly, the DFM has now slipped below the once robust support of 5,700 points and faces falling to its next prop of 5,600 points. If this fails to halt the slide, then the index may challenge the 5,498 mark, which would represent a 50 per cent retracement from its most recent rally.
An Emaar sell-off dominated trading yesterday, with the blue-chip claiming Dh180 million of the Dh838m of shares that changed hands on the Dubai bourse.
Speculators showed scant enthusiasm for accumulating stocks ahead of the end of the first quarter. This may start later this week, although further bad news on the US economy may persuade them to hold onto their cash, however irrational this mentality may appear.
“Low volumes are plaguing the market,” said Alok Nawani, Emaar Financial Services equity investment analyst.
“With a flat market, it’s possible the Dubai bourse could fall further, although it’s not too long until mid-April and the first quarter results, which should prompt the market move for the right reasons.”
The capital’s turnover was paltry, with just 70.4 million shares worth a combined Dh426m traded. “Volumes are low because liquidity is waiting on the sidelines for some positive news to move the market,” said Mohammed Ali Yasin, Emirates Securities managing director.
“The market will move in a two per cent range up or down on a weekly basis. It could bounce back tomorrow.”
The real estate sector will probably determine the ADSM’s immediate fate, with the once soaring stocks of Aldar and Sorouh now struggling to make an advance.
Aldar slipped 1.39 per cent to Dh10.65 yesterday, which is 18.4 per cent below its 12- month best, while Sorouh has fallen 6.8 per cent to Dh10.25 since posting a record high of Dh11 two weeks ago. Rak Properties is another stock on the wane, having fallen by almost a fifth over the past two months.
Abu Dhabi National Hotels, which this column previously tipped as a good defensive stock to hedge against a wider market downturn, was one of the few companies to prosper yesterday, climbing 1.77 per cent to Dh9.77. It has nearly doubled in price over the past year. National Bank of Abu Dhabi was the ADSM’s most notable gainer, rising a modest 0.44 per cent.
“At certain supports we should see some accumulation and a market upturn, although this may not be as significant as investors hope,” said Yasin.
“Low volumes indicate there’s not much interest in the market right now.”
Etisalat fell 0.62 per cent, despite announcing plans to bid for Egypt’s second fixed-line phone licence. Dana Gas also toiled, losing 2.65 per cent.
Investors are increasingly using a shorter time horizon, with one mutual fund switching from weekly to daily redemptions.
This could indicate there is more demand for day trading or it could mean that day traders are seeking other ways to access the market as leverage becomes tougher to attain following changes by the UAE regulator to tighten up lending rules for brokers.
“The consensus is there’s still value in the market and investors have a neutral position at present,” Yasin added.
US RATE CUT MAY STIMULATE MARKETS
Many brokers are pinning their hopes on a probable US interest rate cut to stimulate global and UAE markets.
The Federal Reserve is expected to slash US lending rates by a further 0.75 per cent tomorrow, bringing the American benchmark down to 2.25 per cent, the sixth reduction since September.
“If the Fed cuts can stabilise the US markets, then the UAE indices will shoot up, with local and foreign investors buying back the shares they have sold,” said Alaa El Din Moustafa, EFG-Hermes chief dealer.
His optimism may be unfounded, however, with the rate cut providing only brief respite for the beleaguered global exchanges because the Fed move has already been priced into the market. Hard-pressed banks may also fail to pass the cut on to customers.
“UAE companies have announced strong results and good dividends, but nothing will convince investors to buy until they see some good news from America,” said Moustafa.
Dubai’s turnover will have to top Dh1.5 billion for the market to mount a recovery, according to Amjad Bakir, Mac Sharaf Securities trading manager, although he warns any resurgence may be short-lived.
“The Fed rate cut will push the UAE markets up for a couple of days before they fall again,” he added.
Ajman Bank has revealed share allocations following the completion of its IPO and will list on the Dubai Financial Market in the second quarter of 2008.
Each subscriber will receive the minimum allotment of 2,000 shares. The bank sold 550 million shares at Dh1 each. Following allotment of the minimum amount of shares, the balance of the subscriptions will be allocated on a pro-rata basis, so that UAE nationals and non-UAE nationals will be allocated 423m and 100m shares respectively. These figures were calculated after 167,221 UAE nationals and 46,600 non-UAE nationals applied for the IPO.
The remaining five per cent of shares will be allocated to the Ministry of Finance.
EMAAR TO DECIDE
Emaar’s performance may decide the immediate future of the Dubai index. This duo have not moved in differing directions since February 28, when Emaar ended unchanged on Dh12.45 and the index surged 0.48 per cent to 5,960 points, its highest close over the past two months. The Dubai bourse and Emaar have fallen by 4.8 and 6.4 per cent respectively since then.
Emaar lost 2.1 per cent to close on Dh11.65 yesterday as investors continue to demonstrate little faith in the property developer, despite numerous glowing reports from analysts, the most bullish of which saw HSBC estimate its fair value at Dh23. “These are reports are always from a long-term perspective – they never say what the share price will be tomorrow,” said Mohammed Ali Yasin, Emirates Securities managing director.
“These price predictions are based on future earnings, so if Emaar can produce first quarter results that show it’s on the way to meeting these estimates, the stock should rise.”
BEATING THE DOWNTURN
Tamweel was one of just four stocks to escape the downturn in Dubai yesterday. It climbed 0.44 per cent to Dh6.70 after approving a dividend that provides a 2.3 per cent yield, based on Thursday’s closing price. Gulf General Investments (GGICO) ended up 0.7 per cent to Dh14.35 and is one of Dubai’s top performers, leaping 63 per cent.
“Tamweel and GGICO are showing strength in a bearish overall trend, so once the market recovers they should really shoot up,” said Shiv Prakash, a Mac Sharaf Securities technical analyst. The other two gainers – Dubai Refreshments and Alfirdous – saw less than 16,000 shares traded between them.
The top five traded stocks all fell, showing sell orders dwarfed those to buy. Three of this quintet were penny stocks, with Air Arabia falling 1.94 per cent to Dh2.02, while Deyaar and Gulf Navigation lost 1.6 and 1.67 per cent respectively. The other two were Emaar and the DFM. The latter was another to suffer, plunging 3.24 per cent to Dh5.66 as the Dh6 target becomes ever more distant.
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