Negative investor sentiment and a shortage of liquidity continued to drag the Dubai Financial Market down yesterday for a third consecutive session.
The day was dominated by speculators in the absence of serious buyers and sellers. The general index lost 46.68 points, or 2.65 per cent, and closed at 1,712.37 after fluctuating sharply up and down.
The DFM witnessed two trends yesterday. It opened in negative territory with bellwether Emaar failing in its attempts to consolidate and proceeded to fall gradually throughout the first half of the session.
The index crashed through its important support area of 1,700 points and touched an intraday low of 1,697, down around 62 points, or 3.5 per cent. Emaar also fell through its support level at Dh3.50 and hit an intraday low of Dh3.48. All other active stocks went through their support levels as Arabtec fell to Dh2.36 and DFM stock traded at Dh1.65.
At these low levels the selling pressure eased and a new trend began as buying interest appeared during the second half of the session. This trend helped leading active stocks to narrow their losses and bounce above their support levels.
Emaar managed to close at Dh3.55, down by 5.08 per cent and Arabtec ended 1.62 per cent down at Dh2.43. DFM stock was the biggest loser after it retreated by 6.63 per cent to Dh1.69.
"Buyers are putting more pressure on the market as they are trying to drag prices lower," said Hussam Al Jundi, General Manager of Electronic Stock Brokerage. "This pressure is affecting the general sentiment among investors and have led to a sharp drop in turnover.
"The market is still suffering from low liquidity but there is large opportunistic liquidity on the sidelines waiting for lower prices. There is a general sentiment among investors that the DFM index will go lower, maybe to around 1600 points, in the coming two weeks.
"These expectations are creating the impression that prices will go lower and buyers can wait to accumulate at lower prices and maximise their profits when the DFM rebounds. Historically the DFM always sees calm trading at low volumes during January and February. However, this time the low activity is combined by significant declines in the index, which has not been seen before."
Abdul Hakim Jamil, Financial Analyst at Al Brooge Securities, said investor sentiment had turned sharply negative due to a lack of news about earnings.
"There were high expectations that earnings would be weak in 2009 due to the financial crisis, but the new trend among investors is worrying as they are expecting earnings to be worse than previously estimated.
"There is a strong feeling among investors that companies will not revert to window dressing to hide their negative performance last year. Also there are increasing rumours among investors about weak earnings and about resignations among members of companies' boards on the back of negative results."
Jamil said the main negative trend was that investors had started to believe rumours rather than official statements.
"The DFM had already absorbed the news about the deal between Arabtec and Aabar. However investors have started to believe any rumour about any listed company, and this has created deep confusion and uncertainty in the market. Companies should announce their Q4 results very quickly to ease the pressure on stocks."
Turnover improved yesterday as 235.4 million shares worth Dh469.8 million changed hands. There was strong concentration on Emaar and Arabtec as both stocks accounted for more than 45 per cent of turnover.
"Turnover is still weak though it advanced yesterday because of speculation on leading active stocks after they hit intraday lows," added Jamil. "These were speculative movements for quick profit booking and we do not expect this trend will continue. There are no serious buyers or sellers in the market."
He also highlighted the negative reaction to positive news among investors.
Al Jundi said he thought the DFM could continue to face downward movements with some bounces up until mid-February when listed companies complete the disclosure of their 2009 results.
Foreign investors remain major sellers
Foreign investors returned to the DFM as major sellers yesterday, buying shares worth Dh220.98 million and selling shares worth Dh279.74 million, making them net sellers of shares worth Dh58.76 million.
"Despite the selling trend yesterday there are signs that foreign investors and institutions have started to accumulate in the market, but at very modest levels," said Hussam Al Jundi, General Manager of Electronic Stock Brokerage. "In general, they were previously outside the market waiting for lower prices. There are no clear reasons for the downtrend but some investors are predicting that prices will go lower. Foreign investors are taking the same position and their current levels of investment are very low."
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