DFM recovers after sharp fluctuations

The Dubai Financial Market (DFM) bounced up yesterday amid bullishness across the board after the market gave indications of being oversold. However, the DFM index advanced at low turnover, which reflected continued weakness in the market and uncertainty among investors.

The index added 44.21 points yesterday, or 2.82 per cent, and closed at 1614.30 points after sharp fluctuations during the session. The first half of the session witnessed aggressive movements as the market opened in the positive area, but it turned down quickly and hit its intraday low of 1561 points before reversing again.

The index moved in a calm manner during the second half of the session and continued in the positive area, with leading active stocks Emaar, Arabtec and DFM maintaining their gains.

The DFM gained across the board yesterday as 24 stocks advanced, one retreated and three remained unchanged. Turnover dropped by almost 30 per cent yesterday compared with Sunday's session, as 207.3 million shares worth Dh368 million changed hands. Concentration on Emaar, Arabtec and DFM stocks remained in the market with the three stocks dominating 70 per cent of total turnover. The rally was led by Emaar and Arabtec. Other stocks advanced only slightly and their impact on the DFM index was limited. Emaar fluctuated in the range of Dh2.92-Dh3.15 before closing at Dh3.14, gaining 5.72 per cent. Arabtec moved in the range of Dh2.13-Dh2.27 before closing at Dh2.26, up by 4.15 per cent.

"Despite the bounce in the DFM yesterday, the deep concentration of trading on two or three stocks is still worrying," said Hussam Al Jundi, General Manager of Electronics Stock Brokerage Company. "Emaar and Arabtec are dominating trading and this situation reflects a high speculative trend among investors. They are focusing on liquid stocks as they can come in and out quickly.

"The rally in other stocks is not encouraging and most of them moved in a narrow range of 2 or 3 fils. This did not attract speculators, and the stocks advanced slightly at the beginning of the session and remained in these areas until the end. The bounce in the DFM is still weak and we need higher turnovers to get a confirmation that the market is changing its general downward movement," said Al Jundi.

Ahmed Tabbo, Financial Analyst at Darahem Brokerage, said the bounce in the market was a speculative movement rather than a change in the trend. "The DFM has witnessed strong downward pressures during the previous three sessions and the bounce was expected.

"The market also went down during the first hour of trading and opened the way for more speculators to take positions. However, selling was seen when leading active stocks rebounded and some bargain and profit booking movements intensified."

The negative impact of the downward movements in global markets and the lack of disclosures from listed companies are still creating confusion and uncertainty among longer-term investors.

"The correction in global markets is inevitable because the strong rallies in these markets were partially artificial," Tabbo said.

"International fund managers, especially those of the giant banks, were pushing prices higher to record good profits for 2009 and get bonuses. Now, the financial story has become clear and global markets should correct to their fair levels.

"However, this correction will be very negative for local markets because the DFM always overreacts to negative trends in global markets," said Tabbo.

Al Jundi, however, said the current downtrend in the DFM might attract investors for long-term positions. "The trend in global markets is adding more pressure on local markets and the correction in the Dow Jones is giving negative indicators for both global and local bourses. This negative impact, though, is expected to be for the short term."


Index faces strong resistance

The bounce in the DFM is unlikely to continue as the index is facing strong resistance at 1640 points while the turnover remains low.

"The DFM faces a critical resistance at 1640 points and the current negative sentiment is reducing possibilities that the market can jump above this level. We are moving in an important range and the earnings of listed companies will decide the ability of the DFM to change its downward direction," Ahmed Tabbo said.

Al Jundi agreed that the bounce in the market was not sustainable due to the shortage in liquidity. "Today's session will be important as brokerage firms will start preparing their reports and they should cover margin trading positions. This usually creates more selling pressures in the market. In general, the turnover is low and speculative and so the uptrend is weak; we cannot expect a rebound in the market in the near-term," Al Jundi said.

He added that the forthcoming 2009 results, especially in the banking sector, were the focus of investors.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.