The pessimists were proved correct yesterday as the Dubai Financial Market returned to the red. As this column predicted, a large sell-off pushed the DFM's General Index down 0.44 per cent to 5,293. This was probably prompted by the closure of margin calls ahead of the weekend and confirmed analysts' expectations.

"Foreign institutions are the main drivers of the market, but these have been retreating because of recessionary pressures in their home markets, while the Nasdaq and Dow are now technically bear markets," said Mohammed Ali Yasin, Emirates Securities managing director. "The geopolitical problems surrounding Iran are also keeping foreign funds out of the market."

Turnover was up more than 50 per cent on the day before, with yesterday's total of Dh1.66 billion the highest for 15 days.

Ajman Bank again claimed the bulk of this trading, accounting for 182 million of the 398m shares that changed hands yesterday, but it fell 2.88 per cent as most of Monday's gains were wiped out.

Many other stocks followed the same pattern, with the five most active stocks all declining to underline the dominance of sellers. Emaar fell 0.48 per cent to Dh10.25, while DFM Company plunged 3.71 per cent to Dh4.66, its worst finish since mid-January. Both of these companies enjoyed late buying to recoup some of their intraday losses and this may offer hope of a rebound today, with Emaar slipping to Dh10, intraday. "Negative sentiment is affecting the market," said Yasin.

"It has not reacted to the fundamentals of listed companies, which have seen excellent growth levels, especially in the finance sector. The true valuations of companies are not being reflected in the share price."

Air Arabia took a mauling, dropping 4.29 per cent to Dh1.56, a nine month low, after 60m of its shares were sold.

"As with most budget carriers, investors are worried Air Arabia's profitability will be hit by the huge spike in oil prices, while some are preemptive selling ahead of the launch of low-cost rival FlyDubai," said Yasin.

"A lot of Dubai residents use Air Arabia at the moment, so the worry is they will switch to the new carrier if their prices are similar."

On Monday, FlyDubai announced a $4bn deal for 54 Boeing narrow-bodied craft.

Losers outnumbered gainers 16:7, with Shuaa's spectacular 14.96 per cent increase hogging the limelight.

The next two gainers, Al Firdous and National Cement, saw minimal trading, but fourth placed Union Properties is among Dubai's best performing stocks of the past two months. It climbed another 2.41 per cent to Dh5.53, which means it has increased by almost a fifth since May 18.

"There are great opportunities for medium to long term investors, with many bargain hunters quietly building up positions to avoid moving the market," added Yasin.

Dubai Islamic Bank fell 1.13 per cent to Dh7.86, which is an 11-month low. While Dubai's three most influential stocks – Emaar, DFM Company and DIB – all toiled, two of the other blue chips closed in the green. Emirates NBD added 1.27 per cent, while du edged up 0.54 per cent.



Index rally

The imminent release of Emaar's second quarter results could trigger an index rally. But analysts are worried a probable write down from its US subsidiary, John Laing Homes, will take a sizeable chunk out of second quarter profits.

"The Q2 results could be below those of Q1, but Emaar should have positive growth for the year as a whole, and there's a strong belief its local projects have been generating good sales," said Mohammed Ali Yasin. "There is gradual increasing interest in Emaar shares from local investors, which is promising sign, because in the absence of foreign funds, they are likely to drive the market."



Shuaa up 15 per cent on ownership rule change

Shuaa Capital shares jumped a maximum 15 per cent yesterday after the company changed its definition of local ownership. GCC nationals have now been classified the same as UAE nationals. With Shuaa at its 49 per cent foreign ownership limit, the rule change has freed up some 21 per cent of the companies shares to international investors. Shuaa closed up 14.96 per cent at Dh7.53 after 9.3 million of its shares changed hands yesterday.

"This is clear proof of the major demand from international and GCC investors," said Oliver Schutzmann, Shuaa Capital head of investor relations. Some international investors have been trying to buy our stock for over a year and couldn't due to the foreign ownership limit."

Interestingly, Shuaa fell to an intraday low of Dh6.17 on Monday, which is below the Dh6.55 value of its convertible bond.

Shuaa's abrupt resurgence has prompted speculation that other companies in a similar position may follow suit, particularly Aldar Properties and Sorouh Real Estate, which have toiled since hitting their foreign limits of 20 and 40 per cent respectively.

However, as real estate companies and therefore landowners, this pair will have to overcome huge regulatory hurdles before being able to emulate Shuaa.