Heavy profit-taking by various types of investors on the Dubai Financial Market brought a week's bullish trend to a close yesterday, creating strong pressures on the index during the final hour of trading.
The DFM general index retreated 69.36 points, or 4.33 per cent, to close at 1,531.88 points after it rallied 5.38 per cent during Thursday's session.
The market opened the session with a gap down and then recovered immediately and advanced to hit 1,636 points before it retreated sharply during the last hour.
The downturn in the market coincided with increasing turnover that gave a negative sentiment among analysts. The turnover jumped yesterday to record levels as trade volume increased to 1.043 billion shares, the highest volume since 23 January 2008, while trade value hit 1.496 billion, the highest value since 15 October 2008.
DFM, Emaar and Arabtec stocks continued to lead the list of the most active stocks by both volume and value. The three stocks shaped the DFM index during trading yesterday and they opened with a gap down and then recovered to continue their upward trend to hit their upper limits. By the last hour of trading, the market changed its trend sharply and the three stocks retreated dramatically, almost by the limit down.
DFM stock advanced to Dh1.59 during intraday transactions before it turned down, losing 9.85 per cent and closing at Dh1.28. Emaar also advanced to Dh2.17 before it lost 9.56 per cent and ended the session at Dh1.89. Arabtec declined by 9.57 per cent to close at Dh1.70 after it rallied to Dh2.01.
There was agreement among different analysts that profit-booking movements were the main reason behind the strong fluctuations in the DFM index throughout the session. But they differed on the identity of the main players behind these movements.
There were expectations that after the DFM index rallied last week it would face profit-booking and selling pressures at some point this week. But analysts were taken aback that the downward movement took place during the first session of the week.
Amjad Bakir, Trading Manager at Mac Sharaf Securities, explained that the profit-booking was expected after active stocks, including DFM, Emaar and Arabtec, rallied sharply last week.
"The movements in the DFM index since the beginning of the session gave indications that the market will face heavy profit-booking. The index opened with a gap down on profit-booking and then turned up around two per cent, creating a bull trap for investors who rushed to buy at this point.
"By the end of the session, profit-taking returned at very strong levels and dragged the DFM index down sharply."
Bakir blamed institutional investors for the high selling pressures in the market, stressing that they were accumulating stocks since the beginning of the month at very low prices and pushing the index higher to set it up for a profit-booking movement.
"The index opened with a gap down then institutions pushed prices higher, creating a double top in the index. By mid-day, the buying trend petered out and there were no takers for DFM, Emaar and Arabtec stocks.
"The sentiment turned sharply and the market turned bearish so prices went down after institutions started their profit-taking by the end of the session," Bakir said.
"All investors, including individuals and institutions, turned sellers during the last hour. This trend may continue today as the market is still bearish," he said.
However, Hosam Al Husseini, Head of Brokerage at Emaar Financial Services, highlighted the increasingly active trading on the Dubai market, which gives positive indicators. "The market faced strong profit-booking movements which may continue during today's session. However, the impact of profit-booking is expected not to undermine active trading in the market. The index should consolidate over 1,500 points this week, while resistance level at 1,600 is still possible to hit," Al Husseini said.
He explained that since the beginning of the month there were waves of new liquidity entering the market and this would maintain active trading in the short term.
"In the beginning, foreign investors were accumulating their portfolios, then last week we saw local and GCC investors injecting more liquidity into select stocks. This increased trading activity.
"We also noticed new liquidity coming to the market through local investors after banks started to ease financing facilities for investments in stock markets," Al Husseini said. However, the new liquidity is speculative rather than long-term, he said. "There is increasing speculative bahaviour on the DFM, which is creating high fluctuations in the index. All investors, individuals, institutions, foreigners and locals are moving based on speculation for very short-term and quick profit-booking trading. This behaviour is still creating negative pressures in the market.
"The buying power is changing from foreigners to local and GCC investors. We saw some GCC institutions injecting liquidity in the market and this may change the behaviour in the short term. However, foreign investors will continue being speculators."
Hummam Al Shamaa, financial consultant at Al Fajr Securities, blamed speculators for the high selling pressures on the DFM yesterday. "Speculators were turning over the same liquidity several times during the session. Institutions could not prevent the high fluctuations ibecause they are suffering from shortage in liquidity. The market witnessed a record level of turnover yesterday because of movements by speculators who benefited from some positive news during the past two weeks to push prices higher and then leave the market quickly," Al Shamaa said.