The Dubai and Abu Dhabi stock markets yesterday displayed strong indicators that they are consolidating an upward trend.
The Dubai Financial Market broke through the 5,800 barrier and closed at 5,813.04 points, paving the way to move up to another resistance level of 5,900 points.
The Abu Dhabi Securities Exchange closed at 5,092.87 points, just shy of the psychological level of 5,100. Total traded value crossed Dh4 billion on the UAE bourses for the second day. It was Dh2.36bn on the DFM and Dh1.99bn on the ADX. Volume reached 588.5 million shares on DFM and 472.7 million shares on ADX.
Analysts attributed the high increase in both trade value and volume to the increasing confidence in the stock markets, increasing facilities by brokerage firms to investors and the return of high net worth investors, which is fuelling interest in small-cap and mid-cap stocks. Bellwether stocks on both exchange played a minor role yesterday, but are expected to strengthen their current levels and support the index upswing in the short term.
Abdel Hakim Jamil, broker at Borouj Securities and Bonds, said yesterday's increase in the stock markets was led by increasing speculation, which was clear from the high recycling of capitals in the same trading session. "It was clear that speculations dominated trading due to high buying and selling orders during the first quarter of the session. Brokerage firms also increased their facilities for their clients.
"We saw another trend of long-term investors and foreign and institutional investors entering the markets. The main driver for this trend is spreading good news about major companies in the market, which are expanding their businesses. For example, Amlak renewed its quest to get a banking licence, and Tamweel plans to become a holding company and diversify its investments. There is good news about property firms opening new investment arms. This encouraged investors to return more aggressively," Jamil said.
Waleed Al Khateeb, head of trading at Daman Securities, said DFM would continue the upward trend in the short term due to several factors. "There are indicators to support this view – including high liquidity in the market waiting for the right movement, high corporate profitability expected in the second quarter and the comparatively low stock prices.
"The market will continue this trend for the next three weeks. There may be some profit-taking by the end of the month. The most important issue is that there is increasing confidence in the market."
Hosam Al Huseini, head of brokerage at Emaar Financial Services, said yesterday's session focused on a limited number of stocks, reflecting the increasing speculation in the market. "Stocks, which could achieve break-out since the beginning of the session such as Amlak, Tamweel and Aramex, attracted trading until the end. DFM's ability to hold over the 5,800 point level is a very significant signal that will lead to the 6,000 level in the short term."
He predicted that the current trend will continue today. "Speculators will focus on new stocks, which were stable during the last two sessions. Also, we expect profit-taking movements after the high increases and gains achieved during the previous two sessions.
"Tuesday's session will be critical and we expect very high trade values and volumes. If the DFM can close over 5,900 points, this means that it will be able to reach the 6,200 level very soon," Al Huseini said.
Property market sucks out some liquidity
Despite positive fundamental indicators in the UAE stock markets since the beginning of the year, the DFM dropped by five per cent and the ADX surged by around seven per cent, compared to an average of 10 to 25 per cent increase in most Arab stock markets. Hani Hussein, manager of assets and research at Damac Capital International, blamed the UAE property market for this low performance.
"All indicators showed the strength of UAE stocks, including high economic growth rates, increasing oil prices, and high profits achieved by listed companies during the first quarter. These positive indicators did not show up in the index of both DFM and ADX," he said.
"We noticed that there is increasing liquidity going out of the stock markets to the property market during the last few months. With the current increase in building materials, leading to higher property prices, investors became more interested in property and this added pressure on markets," Hussein added.
He said that the current surge in UAE indices reflected more liquidity in the markets. "Investors who liquefied their positions are returning to build up new ones before the announcement of the second-quarter results. There are high indicators that profits achieved in the first quarter will increase in the second quarter, and this encouraged investors to return to the stock markets.
"Also, rumours about the UAE's intention to depeg encouraged international funds and institutional investors to build new positions in local stocks, waiting to achieve double gains after revaluation," he said.