The Dubai Financial Market (DFM) is projected to continue sideways trading with fluctuations in a thin channel for several weeks due to the absence of institutional investors.
Aiding this sideways trend is the sharp decline in liquidity along with low expectations of any critical news that can change the trend in the market.
The DFM index lost 10.23 points, or 0.60 per cent, and closed at 1698.30 points, just around its support level in yesterday's trading. The turnover was low, with 163.8 million shares changing hands at a total value of Dh229.1 million.
Increasing speculation dominated trading, especially in real estate stocks, including Arabtec and Emaar, which lost 9.78 and 0.48 per cent respectively. The DFM stock also attracted strong trading yesterday and retreated 3.78 per cent to close at Dh1.27. Aramex ended the session flat at Dh0.96 despite the stock advancing to its resistance level at Dh1.03 during intraday trading.
Analysts highlighted the correlation between the UAE markets and international ones, which are suffering from the global financial crisis. "However, the impact on the UAE markets is still deeper than global markets. The DFM has become sensitive to oil prices and any retreat in oil is leading to a decline in the index. The UAE markets are still showing excessive reactions to global developments," said Saket Al Jundi, Managing Director of Electronic Stock Brokerage.
He added there were three main factors influencing the DFM at the current stage: lack of liquidity, low confidence in the market and the absence of institutional investors.
"There is a deep issue of confidence in the market on the short-term, because investors cannot see any new liquidity in trading. Institutional investors are out of the market for a long time and this is deepening the uncertainty among investors."
"Funds are suffering from the lack of liquidity and they are not willing to enter into medium or long-term investments. They prefer to trade in the market for short-term investments," he said.
Al Jundi expected this sideways trading to continue for several weeks until the announcement of the results of listed companies. "We expect some movements in the index when companies announce their results. But we think the impact will be marginal, because the market has already factored in the expected negative performances of listed companies, especially during the last quarter of 2008.
"The market still needs new and strong liquidity from institutional investors, or even from sovereign wealth funds, to support trading. There is strong liquidity on the sidelines waiting for greater movements in the market before entering again. However, such movements require huge funds and liquidity to begin with before confidence returns to the market," he said.
Al Jundi also cited the low trading turnover during the retreat in the DFM as a positive indicator. "Shareholders are refusing to sell their shares at the current price levels because this means that they will suffer huge loses. Also, there are limited buy bids and this situation is leading to more and more retreat in the turnover.
"However, the real issue is the expected long-term sideways trading, because that would need strong intervention from SWFs or institutional investors to correct.
"Prices in UAE stock markets have reached very encouraging levels, but individual investors are waiting for movements from institutional ones."
Al Jundi also expected banking sector stocks to trade strongly during the next stage, while the real estate sector would continue to fluctuate in a thin channel.
Waleed Al Khateeb, trading manager at Daman Securities, agreed that institutional investors had allocated a part of their funds for short-term trading in the markets, while refraining from making medium or long-term investments.
"There is no clear vision in the markets so far and institutions are preferring to wait until there is a clear trend to take their investment decisions. Also, there are no expectations of major changes in the indices in the short-term," Al Khateeb said.
He added that there would be some pressures on stocks in the near future, when the final results of 2008 are disclosed.
ADX retreats as bearish sentiment continues
The Abu Dhabi Securities Exchange (ADX) retreated 29.42 points, or 1.18 per cent, in yesterday's trading and closed at 2,455.18 points near its support level at 2,450 points.
The trend continued to be bearish in the index and the turnover reduced to 60.3 million shares at a total value of Dh146.1m.
Active stocks suffered strong declines, with Methaq, Rak Cement, BOS and Agthia closing near their lower limits. However, etisalat advanced 2.35 per cent to close at Dh10.90, which helped the index to narrow its losses.
There is a strong correlation between the DFM and ADX and both markets are in a downward trend despite the ADX being in a better position to reduce loses, according to analysts.
There is increasing liquidity entering the market from institutional investors and this is expected to hold the market for a long period.
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