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Lack of liquidity plagues trading on UAE bourses

By Matt Smith




No news is bad news for the UAE exchanges as subdued volumes propel them along a downward trajectory. Without any events to spark trading, the markets are falling steadily further on declining liquidity.


The Dubai Financial Market dropped 0.74 per cent to 5,714 points on Tuesday, while the Abu Dhabi Securities Market declined 1.2 per cent to 4,730. The two exchanges have lost 240 points between them in three sessions this week and volumes again disappointed on Tuesday as 178 million shares worth a combined Dh858m changed hands in Dubai, while for Abu Dhabi these figures were 152 million and Dh822m respectively.


“The lack of liquidity is a concern right now,” said Ayman El Saheb, director of operations at Darahem Financial Brokerage.


“The only thing that could change the trading pattern in the short term is a sudden jolt, either positive or negative, and current sentiment would suggest the latter is more likely,” said Saheb. Outside instability, both political and economic, continues to inhibit trading on the UAE bourses, brokers say.


“The Egyptian market is following much the same pattern as the UAE and the rest of the Gulf, with volumes slowing down and little activity from foreign investors,” said Sherif Abdul Khalek, Al Futtaim HC Securities dealing room manager. “It’s the same mentality across emerging markets. There is no momentum in the market – we are still moving in a flat range.


“The market could pick up at any time and as we move closer to the end of the first quarter more liquidity will return, although I do not expect any major move for the next week to 10 days,” said Khalek.


Local and foreign institutions are playing the same waiting game, leaving the market to be dominated by day traders fighting for scraps. The latter rely on fluctuations to turn a profit and with a flat, downward market there are few opportunities at present.


Day traders are cautious because few have much cash and rely on leverage from lenders to fund their speculating. This must be paid back within one to five days, so these traders are scared of being forced to sell declining stocks at a loss. So for many, the best strategy is simply to stay out of the market until it begins to pick up. Active day traders are focusing on the so-called penny stocks to try to turn a profit in a moribund market.


On Tuesday, three of Dubai’s top five traded stocks in volume terms were worth less than Dh3.

Air Arabia was the most active with 49 million shares changing hands to push it up 0.48 per cent at Dh2.07, while Deyaar fell 1.17 per cent to Dh2.52 on the back of 17.4 million shares sold. Gulf Navigation completed the trio, falling 1.2 per cent to Dh1.6 as 17.3 million of its shares were dumped.


“On a weekly basis, the market is moving steadily downwards, but not by a big percentage,” said Khalek. This falling trajectory could prompt two trends. The first would see institutions eventually tempted to buy as prices fall to bargain levels.


Meanwhile, investors could decide to sell in the belief that prices will fall further and so they will be able to buy back at lower levels.

“Neither market will fall by more than two per cent or about 150 points – it will continue a broad pattern of falling for two days and rising for one,” said Khalek.


In Abu Dhabi, etisalat closed down 1.23 per cent at Dh24, while RAK Properties fell 2.71 per cent to Dh2.51. It has declined by a sixth over the past two months.


RAK Bank increased by 2.42 per cent as investors reacted positively to its annual dividend. This offers a payout ratio of 15 per cent, plus 20 per cent bonus shares, according to Shuaa. “If funds flow into the market we will see a break in the downward trend,” added Darahem’s Saheb.


Aabar Petroleum was the capital’s most active stock, both in terms of volume and value, but the company dropped 5.3 per cent to Dh4.13 following the sale of its subsidiary Pearl Energy.


First Gulf Bank continued its slide, slipping 2.5 per cent to Dh21.20. The lender has fallen 3.42 per cent since announcing a cash dividend including bonus shares on Sunday.


The DFM’s own stock lost 0.33 per cent to close on Dh5.91 as it struggles to challenge the Dh6 barrier. With the stock’s revenues dependent on trading fees, the lower volumes are harming DFM profits, but if turnover picks up later this month, as predicted, then the DFM’s share price will be among the first to benefit.





UAE stocks continue to be plagued by manipulation, some brokers allege. While not illegal, stock prices can be easily influenced in a low-volume market for individual gain.


For example, it is claimed insider trading on Monday sparked Shuaa Capital’s mega rise over the past two days. This saw insiders buy one million Shuaa shares in two tranches in quick succession just before midday on Monday.


With the rest of the market dormant, the sudden move prompted other traders to snap up Shuaa shares, fuelling the stock’s rally, which was further boosted by an HSBC report saying it had a fair value of Dh12.60.


Insider trading is against market regulations. The insider must submit a request to the market to buy or sell a particular stock, which will then be approved or declined by the market’s management. If successful, the insider is then allowed to trade.


Meanwhile, Air Arabia saw market manipulation by a high net worth investor on Tuesday. After opening slowly at Dh2.07, the budget carrier’s stock fell to Dh2.04. An order for one million shares at Dh2.06 was then placed, which sparked major buying by smaller investors.


“The market is dead and suddenly an order of this size comes in, so the smaller investors think it’s from an institution that must know something and decide they want a piece of the action,” said a broker who did not wish to be named. “The stock rises to Dh2.10 at which point the big player sells up and stock slips back down Dh2.07. It’s amazing small investors fall for this trick time and again.”





Commercial Bank of Dubai endured another day to forget, falling 4.9 per cent to Dh9.65. It has declined by 13.8 per cent since announcing bonus shares on March 6.


Issuing extra shares devalues the existing ones, so it is normal to see a company’s stock price adjust after such an announcement. Companies typically issue bonus shares instead of larger cash dividends to retain profits for the expansion of the business.


Although the share price takes a short-term hit, in the long term the extra investment should help increase a company’s profits and, therefore, its valuation.


This means bonus shares are attractive for medium and long-term investors, but short-term players typically try to sell before the price adjustment, which seems to be what is happening with CBD. First Gulf Bank has followed a similar pattern.





Shuaa Capital topped Dubai’s gainers chart with a 9.87 per cent surge to Dh8.57 on Tuesday. The jump follows the publication of an HSBC report on Monday that set a target price of Dh12.60 for Shuaa.

“Shuaa’s investors are typically institutional with a medium- to long-term outlook, so although there will be some profit taking today, I doubt this will stop the stock’s ascent to a new record high,” said Sherif Abdul Khalek, Al Futtaim HC Securities dealing room manager.


Emaar saw Monday’s gains wiped out as it fell 0.84 per cent to Dh11.80.


The normally static Emirates NBD also tumbled, falling 1.76 per cent. The company, which was formed through a merger of Emirates Bank and National Bank of Dubai, began trading on the DFM in October.


Tamweel fell 1.6 per cent to Dh6.58 after announcing it is considering issuing two sukuks worth a combined Dh5.1bn, with Dh1.1bn of this in a convertible format. The proposal will be debated at Tamweel’s annual meeting on March 31.


Investors have been little moved by the dividend announcements. For example, Dubai Islamic Bank announced a 40 per cent cash payout on Sunday, yet the stock is unchanged at Dh11.95. Its performance over the past 12 months has been impressive, however, surging 61 per cent.