The Dubai Financial Market (DFM) has plunged 8.9 per cent this year after being beset by unavoidable problems, both domestic and international.
While the Gulf region rides a wave of ever higher oil prices and booming domestic liquidity, Dubai equities have suffered as turmoil on international markets prompted foreign investors to cash in gains to cover losses elsewhere.
This sell off struck first in mid-January, when the market shed more than 1,000 points in one week after posting a 52-week high of 6,292 points.
The abrupt slump caught stock market analysts off guard, with most expecting the DFM to continue its late-2007 rally, but as foreigners reduced their exposure, local investors followed suit, striking a devastating blow to the once-buoyant sentiment.
The Dubai bourse mounted a steady recovery from the January crash and came within a whisker of topping 6,000 points again in late February, but this simply sparked more profit taking and brokers say investors are unwilling to keep stocks beyond the short term.
The index has made two further attempts to break convincingly above 5,850 points, but these have both failed and it has lost more than 400 points or 7.2 per cent since June 5.
Brokers often remark that fear and greed drive markets and the former is in the ascendancy right now as all listed firms, both large and small see their market capitalisation eroded. For example, the valuation of Emaar has fallen by Dh8.2 billion this year.
The descent of Dubai’s largest, and therefore most accessible stocks is a sign that foreigners are selling up, although locals are doing the same.
With turnover and prices falling, the market is ripe for manipulation by bigger players, who can more easily affect a stock’s movement. Prices are now very attractive, with many stocks trading at 52-week lows and so some fund managers may start quietly accumulating in expectation of making excellent profits if the market rallies.
This is likely to happen in the fourth quarter, market analysts agree.
There have also been problems closer to home, with the ongoing criminal investigation into the property developer Deyaar and doubts over the transparency of its parent Dubai Islamic Bank further ailing the market.