The UAE exchanges bounced back yesterday, but are likely to remain in a two per cent range until the final 10 days of this month, analysts predict. After the Dubai Financial Market lost 2.6 per cent over the first two sessions this week, investors may have feared the downturn would continue on Tuesday, but an early surge on the Saudi bourse helped calm any jitters.
Instead, traders took advantage of cheaper prices to build positions in the likes of Emaar and Tabreed. This helped the DFM’s general index climb 1.38 per cent to 5,857 points. The Abu Dhabi Securities Market also returned to winning ways, adding 1.1 per cent to close at 4,822.
“Sentiment is driving the market,” said Amro Diab, EFG-Hermes head of institutional sales. “The market didn’t deserve to be hammered earlier this week and so has returned to a normal level. Both indices will trade in a two per cent range up or down for the time being.”
Dubai’s turnover actually fell on Tuesday, despite the index’s rise, with Dh1.17 billion worth of shares changing hands, compared to Dh1.36bn the day before. Abu Dhabi’s stayed broadly the same at Dh870 million.
“Monday’s decline was an overreaction to the woes of the international markets, so yesterday saw some balance return to the UAE bourses,” said a senior analyst who did not wish to be named. “The UAE and Gulf markets are decoupling from the American and European exchanges – apart from the dollar issue, these should be irrelevant to the stocks of this region.”
Shuaa and Arabtec were Dubai’s two star performers, adding 5.22 and 3.36 per cent respectively. With both companies at their foreign ownership limits, non-UAE funds are driving the pair higher as they snap up any available stocks, whatever the price.
Having ended on Tuesday on Dh7.65, Shuaa will target Dh8 today, while Arabtec will hope to challenge Dh12.80, after closing on Dh12.30.
Meanwhile, Emaar stopped the rot on Tuesday, adding 1.68 per cent to Dh12.10, although only 17.7 million of its shares changed hands. “Like the rest of the market, Emaar will continue to move in a one-to-two per cent range. On this scale, whether it goes up or down isn’t that important,” said Diab.
If Emaar can build on yesterday’s gains, it will overcome resistance at Dh12.25 and Dh12.45, before taking on Dh12.75. Reaching the latter figure would leave the way open for a surge to Dh13.45, although such a sudden upturn may be overly optimistic, with most analysts believing it remains in the same two per cent range as the index.
“The market will rally in the last 10 days of March when we will see major volatility,” said Amjad Bakir, Mac Sharaf Securities trading manager.
Bakir advises investors to take advantage of the market’s downturns to accumulate target stocks, because any fall is likely to be temporary. He named Arabtec, Shuaa and Dubai Islamic Bank as excellent picks on the DFM. The latter increased by 0.42 per cent to Dh12 and has leaped 57 per cent over the past 12 months.
In the capital, Bakir highlights old favourite Sorouh Real Estate and Aldar Properties, plus Oasis International Leasing – now known as Waha – as excellent picks for investors. Tabreed was up 0.6 per cent to Dh6.70, after the mortgage provider received a licence to begin operations in Egypt.
“The current uncertainty is causing increased risk for investors – the market has no trend at the moment and investors are overreacting to geopolitical issues,” said the anonymous analyst.
“During other political crises in the past, the markets remained robust so hopefully this will continue this time.”
Q1 results hold key
The UAE exchanges will have to rely on first-quarter results to boost investors’ faith in the market.
“With negative economic news continuing to come out of the United States, investors feel negative about the local stock markets, even though this is somewhat irrational,” said Amro Diab EFG-Hermes head of institutional sales.
“It’s going to take the quarter one figures to confirm to investors that the Gulf isn’t reliant on America – we’re not China exporting goods to the US.”
Diab remains bullish about the full-year prospects for both domestic markets, predicting they will add 25 to 30 per cent in 2008. Such an increase would see Dubai top 7,400 points, while Abu Dhabi would be approaching the 6,000-mark.
“First-quarter results will be the catalyst. If they are positive the market should pick up significantly,” he added.
Like Diab, an unnamed analyst believes investors will have to wait until late this month for any momentum to spark.
“The market needs a motive and positive sentiment to make significant gains, both of which are lacking right now,” he said.
Looking up, Dubai will encounter resistance at 5,900 and 5,920 points, while if these can be breached the next hurdles will be 5,960 and 6,000 points. Trading will need to top Dh1.5 billion for Dubai to overcome just the first of these barriers.
Abu Dhabi is likely to struggle to overcome 4,840 points, technical analysts say, with a turnover of at least Dh1.2bn needed to challenge this mark.
Liberalisation could invite instability
With companies such as Shuaa Capital and Arabtec seeing a spike in their share price as foreign investors snap up the few shares left open to them, some traders have called for a liberalisation of the UAE ownership laws.
Currently, firms can allow up to 49 per cent of their shares to be in non-UAE hands, but many firms set their ceiling lower, and these restrictions could be limiting the growth prospects of the domestic markets. For example, the foreign holdings in Arabtec and Shuaa’s yesterday totalled 48.5 and 47.7 per cent respectively, while Aldar Properties is also within one per cent of its limit.
However, opening up to increased foreign ownership could heighten instability. “The UAE remains an emerging market and I’m not in favour of allowing more hot money in,” said an unnamed analyst.
“We need to avoid what other emerging markets have experienced after going down a similar road.”
This refers to the Asian financial crisis of 1997, which was exacerbated by overseas institutions abruptly withdrawing their money from Asian equities and paved the way for a stock market crash.
The analyst added: “Hot money can suddenly disappear as it chases bigger opportunities elsewhere. A major sell-off would panic local investors.
“The Gulf markets are overflowing with liquidity, so there’s no need to change the rules to attract more cash from outside. Foreign money is welcome because it increases the maturity of the market, but the regulations should not be removed until 2010 at least,” he said.
Markets bounce back but likely to be range-bound