Investors target low-cost stocks in sideways market

 

Retail investors are expected to continue to focus on the low-cost stocks this week.

The top five traders on the Dubai Financial Market on Wednesday, the last day of trading, closed at Dh3.60 or below. Between them, this quintet – Air Arabia, Deyaar, Tabreed, Gulf Navigation and Aramex – accounted for more than two thirds of all shares traded.

In Abu Dhabi, the low-cost favourites include Dana Gas, Oasis International Leasing and Rak Properties. Speculators concentrate on these to make a profit as they fluctuate by a few fils, according to Krishna Murthy, Chief Executive of Al Rostamani financial services division.

“When the market is going up, the blue chips lead the way, but when investors think that their prices are too high, they turn to the second-level stocks,” said Sherif Abdul Khalek, the dealing room manager at Al Futtaim HC Securities.

Air Arabia and Deyaar, both of which listed on the DFM last year, regularly top the trading charts.

The former has exceeded expectations following a difficult start. It debuted on July 16 at Dh1 and two months later was trading around the Dh1.20 mark, but has since jumped more than 70 per cent to close the week on Dh2.11.

In September, however, Deutsche Bank said the budget airline had a fair value of Dh1.70, which indicates the stock is currently overpriced, although anticipation of stellar full year results continues to make it attractive to investors.

It appears speculators and day traders are stretching the value of other cheap stocks. For example, according to data from sharewadi.com based on 2006 earnings, Tabreed is trading at 71 per cent above its fair value, while for Aramex this figure is 83 per cent.

It is a similar story for Oasis International Leasing, which is worth more than double its 2006 fair value and Dana Gas, which is 36 per cent overvalued.

Rak Properties is another so-called ‘penny stock’ enjoying strong investor interest of late. In the first nine months of 2007, the company’s daily trading volume exceeded 70 million on three occasions, but in the past four months it achieved this more than 15 times.

Other low-cost shares have followed a similar pattern, although Oasis International Leasing, which was a favourite of investors between May and September, saw trading fall off dramatically during the market’s major bull run in October and November. However, its volumes have since returned, indicating investors are once again focusing on the cheaper end of the market.

Dana Gas also saw volumes slump in late November before picking up dramatically in January.

Analysts say this is because the whole Abu Dhabi energy sector is resurgent after oil broke through the $100 per barrel barrier mark earlier this month.

Foreign investors

Foreign investors bought Dh4.39 billion worth of shares on the Dubai Financial Market (DFM) last week.

Figures released on Saturday show non-UAE nationals accounted for 31.2 per cent of all shares acquired on the Dubai exchange.

Foreigners sold Dh4.03bn of shares over the same period, meaning that net overseas investment in the DFM last week totalled Dh359 million.

Meanwhile, the rising prominence of institutional investors was underlined by data showing these bodies were responsible for Dh3.53bn of trading on the DFM.

Institutions sold Dh3.48bn of shares last week, making their net investment Dh50.3m over the four trading days from January 6 to January 9.

Total trading was worth Dh13.68bn.