DFM declines further as market remains bearish

Further selling pushed the Dubai bourse yet lower yesterday, although a late rally may offer some hope of a recovery today.

The Dubai Financial Market fell 1.32 per cent to 5,223 points, its lowest close since mid-January and the 20th decline in the 28 sessions since the index last finished above 5,800 points.

Intraday, the Dubai index slipped below the critical level of 5,200, before rebounding slightly. It will fall under this mark again unless turnover tops Dh1 billion for at least three to four sessions, according to Wadah Al Taha, a senior financial analyst.

"The bulk of this trading must be in the leading stocks, not smaller companies that are the plaything of speculators."

"If the DFM drops below 5,200, it may trigger panic selling, although these prices would probably tempt some big players into buying," said Taha. "Any rebound has been fragile and short lived. If 5,200 is broken, then the next support is at 5,000, but hopefully the index won't fall that far."

Taha said the market has the potential to higher but the factors listed above must first be fulfilled.

"The best we can probably hope for is a stable market and there's little prospect of a sharp rebound," said Taha.

"If the DFM can stabilise between 5,300 and 5,400 points it will bode well."

Yesterday's turnover of Dh865 million was barely half Tuesday's total, but selling across all active sectors sent the market down more than two per cent in the final hour's trading, before a late, late rally in the blue chips dragged it slightly higher.

Emaar fell 1.46 per cent to Dh10.10, having found strong support at the Dh10 mark, while DFM Company lost 1.71 per cent to Dh4.58 after falling to Dh4.50, intraday.

Dubai Islamic Bank and Emirates NBD dropped 1.39 and 4.6 per cent respectively, while du lost 1.8 per cent to round off a miserable day for the blue chips.

"Emaar's second quarter results may help stabilise the market, if not spark a rally," added Taha.

There is continued speculation that Emaar will downgrade its 'goodwill' factor as a result of difficulties for its US subsidiary, John Laing Homes. 'Goodwill' is intangible and is the difference between the purchasing price of a company and the net asset value. However, Taha said this value should not be used when calculating the fair value of a company's shares.

Meanwhile, the most active stocks also struggled, with top trader Ajman Bank happy to close flat after recovering early losses, while second-placed Air Arabia fell 1.92 per cent.

Deyaar and Shuaa Capital were next in volume terms, but they also fell, with the latter down 3.7 per cent following Tuesday's near-maximum gain.

Losers topped gainers 15:4. Unusually, the biggest movers were not the small cap stocks that typically require sudden moves up or down to spark any trading, but some of the most popular stocks on the market, with Emirates NBD, Shuaa, Arabtec, Air Arabia and du the five largest losers.

Commercial Bank of Dubai stole the plaudits after jumping 4.16 per cent, while rival mortgage providers Tamweel and Amlak Finance also prospered, climbing 1.41 and 1.6 per cent respectively.

Morgan estimate cut to add pressure

DFM Company shares are likely to come under further selling pressure after Morgan Stanley slashed its fair value estimate for the stock.

The US lender has lowered its price target from Dh6.32 to Dh4.13, a reduction of more than a third. It has also downgraded its DFM rating to underweight amid plunging trading volumes on the Gulf's only publicly-listed exchange.

"The market remains too optimistic, in our view, with earnings forecasts implying 65 per cent year-on-year growth in trading values, in contrast to our forecast of 17 per cent," said Tammam El Barbir, Morgan Stanley banking analyst for the Middle East and North Africa region.

"Keeping this in mind, the special circumstances that drove the strong Q4 2007 figures we see further downside risk to DFM's price."

DFM shares have endured a dire 2008, plunging from a year-best of Dh6.66 on January 6 to yesterday's close of Dh4.58, while it has fallen by more than a quarter since the beginning of May.

El Barbir also highlights the DFM's lower profit growth, no cash or investment related income and lower daily average traded value forecasts as further reasons for pessimism.

However, he says the DFM could yet enjoy a strong second half of 2008 providing volumes pick up, while also calling for more high-profile listings and the introduction of new products, which most likely refers to derivatives.

Morgan Stanley also urges regulatory changes to the pricing of initial public offerings.

"Investors may start regaining interest in Dubai – we believe 2009 could be enough time to see some positive triggers materialise," added El Barbir.