DFM, ADX trading pattern varies as correlation eases

The correlation between the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) seems to be getting diluted when comparing individual daily sessions, but remains stronger from a long-term perspective.

On Sunday, for instance, while the DFM registered its second highest single-session gain this year – with the index galloping 5.23 per cent – it was a flat session for the ADX, which closed only 0.50 per cent higher.

However, when the performance of the two bourses in the first half of the year is compared, the DFM and the ADX seem to have moved in tandem with a high correlation, adding 9.05 per cent and 10.09 per cent respectively.

"The correlation between the bourses is relatively low on a daily basis, but stronger for longer periods. It's interesting to note that weekly correlation between the bourses has increased. Monthly correlation is stronger still. The reason for the slight day-to-day discrepancy is short-term diversification from one market to another," Wadah Al Taha, a senior financial analyst, told Emirates Business.

On February 23, when the DFM recorded the year's highest gain of 7.90 per cent, the ADX moved had marginal gain of 1.05 per cent. However, year to date gains on both the bourses look similar, as the DFM has gained 11.61 per cent while the ADX has risen 15.31 per cent. Interestingly, with similar price-to-earnings (P/E) ratios of 8.74 and 8.29, the UAE markets stand as the most attractive among GCC bourses.

"The correlation between the DFM and the ADX is easing gradually because several factors impact the stocks and markets differently. Hence, both markets move differently. Particularly, news about company activities or local markets will influence the UAE's bourses in a different manner," said Amjad Bakir, Trading Manager at MAC Sharaf Securities.

News at the micro level about companies have different effects on the two bourses. Positive and adverse news about market heavyweights influence the trading pattern significantly and it always differs from one to another. However, sector-wise news affects the stocks concerned on both the DFM and the ADX almost alike.

"There's some correlation among blue chip stocks on both the bourses. For instance, property stocks on the DFM and the ADX mostly move hand in hand. This means, sector-wise we see a correlation. Yes, longer periods show that there's more correlation between the bourses," said Bakir.

With the DFM registering a whopping rise of 5.23 per cent and ADX closing flat with 0.50 per cent gain earlier this week, the two UAE bourses seem to be disengaging in the short term.

The Dubai index has been volatile during the past two weeks, while it has been a continuous upward movement on the Abu Dhabi market for nine consecutive sessions.

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