The Dubai Financial Market (DFM) index turned upwards in yesterday's session in what analysts described as a temporary technical movement before it continues on its downward trend until the expected support level of 5200 points.
The index gained 42.81 points, or 0.80 per cent, in yesterday's trading and closed at 5405.72 points. Around 284.7 million shares were traded at a total value of Dh1 billion. Twenty-one stocks advanced yesterday out of the 25 stocks traded. Two stocks declined while two remained unchanged.
Grand led the list of gainers, advancing by 14.9 per cent followed by Ajman Bank's stock, which surged by 14.74 per cent. Meanwhile, Shuaa suffered the largest decline at 1.45 per cent, followed by Union Properties, which declined over half a percentage point.
Institutional investors continued their offloading in the market as they bought stocks worth Dh181m while selling stocks worth Dh208m.
"The total trading by institutional investors at the DFM during June was Dh369m as aggregate sales. Since the beginning of July, the average daily trading by institutional investors in the market has reached Dh200m as aggregate sales. This reflects the high impact of geopolitical factors in trading. The recent uncertainty about a confrontation between Iran and the West over its nuclear programme has created very negative sentiments among institutional investors," said Mohamad Al Beheiri, head of trading at Amana Financial Services.
He added that the depreciation of the dollar also continued to add more pressure on institutional investments in local stock markets.
"The stock market should reflect the economic situation of any country but this is missing in the DFM because of geopolitical factors. All fundamental indicators of the country and listed companies support the market, yet this is not reflected in trading. We can see that the P/E ratio of Emaar Properties has dropped to less than 10, while the P/E ratio of new stock such as Methaq surged to more than 300. This reflects fluctuation and uncertainty among investors," Al Behairi said.
However, Hani Seif, investment analyst at Damac Invest, said institutional investors remained on the sidelines as the DFM's indicators were not encouraging enough.
"There is increasing sales by institutional investors in the DFM, but this is because the DFM is part of their investments in global emerging markets and they shift their capital from one market to another according to available investment opportunities. I think institutional investors will return aggressively to the local markets once there are strong indications of an upward trend."
Beheiri said yesterday's gains were just a break in the downtrend and there are no major changes expected in it. "The DFM started this trend when its index was at 5850 points. We saw the same at 5550 points and now at 5400 points. However, the downward trend will continue in the short-to-medium term until there are strong positive indicators in the market," he said.
"The DFM's downward movements are showing that when the index drops more than 100 points, it breaks and goes up by around 40 points before it continues its downturn," Beheiri said.
Seif agreed that the current gains in the DFM's index were temporary and the overall downturn trend was still affecting the technical analyses. "All fundamentals are still giving positive indications in the market, but the negative sentiment among investors has created strong dependence on technical movements," he said.
"For example, the stock of Ajman Bank made huge gains during the first week of listing and this is natural. But the stock also lost sharply after a few sessions. With the lack of fundamental or technical data about this new stock, such high fluctuations cannot be justified.
"We expect the DFM will drop to the 5200 level in the next two weeks. The announcement of results during that period will create a strong upward rally because the results will support fundamental factors rather than the current technical factors. We expect the market will then reverse its direction until it reaches a level of 6000 points," Seif added.
ADX crosses 5000
Abu Dhabi Securities Exchange hovered just over the psychological threshold of 5000 points for the second day yesterday and closed at 5006.19 points, gaining 4.96 points, or 0.10 per cent.
Around 262.4 million shares were traded at a total value of Dh1.24 billion. Aabar's stock continued to dominate the trading, with 50.9m shares traded at a value of Dh238.7m. Aabar also advanced by 7.5 per cent, in what analysts attributed to the company's announcement of plans to issue bonds convertible to shares for Abu Dhabi-based strategic investors. The bonds may be worth up to Dh6.7bn. The company also plans to issue convertible bonds worth Dh30m to its staff.
"The final decision about the bonds issue may affect the value of Aabar's stock. However, the current focus on cheap stocks reflects increasing speculation. We see leading stocks in the telecommunications and banking sectors holding the index," said Mohammed Al Beheiri.
Hani Seif said the ADX would continue its upward trend on the short-term.