DFM falls through support level, ADX also down

The Dubai Financial Market (DFM) yesterday failed to maintain its support level of 5400 points and lost 73.85 points, or 1.36 per cent, to close at 5348.46 points. The biggest loss was registered by Emaar Properties, which declined to Dh10.35 and led the DFM index to lose around Dh4.8 billion of its market capitalisation. Trade values and volumes remained at low levels of Dh548.6 million and 132.3mn shares respectively.

"The negative issue with yesterday's session is that the support level of 5400 was broken through significantly.

However, the positive indicator is the decline in trade value and volume during the down trend, so this will increase the possibility that the DFM will rebound and change its trend on the short term," said Wadhah Al Taha, a senior market analyst.

He explained that current trading trends had some negative signals, such as the fast profit-taking movements. "Also, trading appetite among major investors is dropping and we noticed slow trading activities. The response to positive news and results was very limited while the market overreacted to negative news. The response to attractive indicators in the market was also very limited, such as the sharp decline in P/E ratios of most of the companies. The general P/E ratio of national companies in UAE stock markets reached around 14.3 this week, while the P/E ratio of the insurance sector dropped to 8.4 and this is very encouraging," Al Taha said.

"Amlak, for example, announced that it expects annual profits to increase by 90 per cent this year, but the price of its stock continued to drop and investors just ignored these positive news. There are no fundamental bases for the current movements in the market," he added. Al Taha said current market conditions were very encouraging for institutional investors to buy. "They should implement a price defence strategy and create new averages in their portfolios. They should buy within the current price levels to strengthen and protect prices of their holdings as well as the index. However, this will depend on their investment strategy and whether they are keeping liquidity for such market situations to adjust their portfolios."

He added that the current trade value represented only 40 per cent of the average trading value in the DFM during the first half of 2008. "This is very low and we need more liquidity in the market along with strong trading appetite among investors to create an end to the current down turn."

Khaled Darwish, of Rasmala Brokerage, agreed that the DFM is in a downtrend for the medium-term. "Concerning the current strong impact of Emaar on the index, he explained that Emaar's stock represented 24 per cent of the index's total value. The stock was headed below the Dh10 level three times during the last few sessions, but it remained over the Dh10.30 level. It is still holding the index but the impact of Emaar's results was very short-lived." He expected the DFM would continue through a downward trend, until the end of summer for seasonal factors.

Three in a row for the ADX

Abu Dhabi Securities Exchange closed in the red for the third consecutive session after it lost 44.04 points, or 0.89 per cent, and closed at 4930.58 points. Trade value dropped to Dh410.9m while Dh79.1m shares changed hands during the session.

Taqa's stock topped the list of most active stocks by both value and volume after it announced that the release of its second quarter results would take place on August 7. However, gainers in the market, such as ASMAK and Invest Bank, had no impact on the index. The energy and health sectors gained but their impact was limited, while heavyweight sectors, including telecommunications, real estate and industry, created high pressure on the index. Trading on the ADX was slow and limited throughout the session, which was interpreted by market analysts as showing a high potential for an easy and strong recovery of the market

"Profit-taking trading dominated the ADX during the last three sessions but the market is still in its long-term up trend. The issue is increasing speculation and profit-taking movements, which created high volatility in the ADX. But The strong presence of institutional investors is supporting the index," said Khaled Darwish, of Rasmala Brokerage.

High expectations

There are high expectations that the DFM will change its trend and realise a new short-term upward trend soon. "We hope the DFM will not go below the 5300 points because this may lead to the next support level at 5200 points," said Wadhah Al Taha.

"The market needs to move in the range of 5400-5600 points during the next few weeks until the end of the summer. This is a critical range for the DFM to maintain its current position before swinging up."

He said a rebound in the DFM needed high liquidity and aggressive buying from investors, especially institutional investors.