Despite increasingly active trading on the Dubai Financial Market, the index has shown very high fluctuation this month, especially during the past three sessions, which has raised concerns among analysts and investors.
Since the beginning of the month, the market was giving indicators of upward trend on the short term after the index and prices of active stocks reached very low levels, creating good investment opportunities for different segments of investors in the market.
However, the rally on DFM general index on Thursday session of 5.38 per cent turned to panic selling pressures and profit booking, dragging the index 4.33 per cent down on Sunday.
The sentiment changed yesterday again with the index adding 7.91 per cent.
According to analysts, this high volatility reflects weakness in the market, which needs consolidation and steady trading to create a bottom.
Noor Al Zou'by, General Manager of MAC Sharaf Securities, voiced concerns over the sharp movements in blue chip stocks that moved by up and down limits during the past few sessions.
"There is no justification for this very high volatility in the market. There is very high level of speculations in Dubai bourse that is harming small investors. They are suffering major losses at the current stage," Al Zou'by said.
"If we take Emaar stock as an example, the price jumped [yesterday] almost 15 per cent while it lost around 10 per cent in the previous session.
"This high fluctuations is creating big gaps in prices and small investors will be the main losers in the market. We noticed small investors, local and foreign individuals, are leaving the market at the current stage due to the high volatility.
"Sharp fluctuations also showed that weak indicators on the DFM are still there and all segments of investors are focusing on quick short term speculations, rather than long term positions," Al Zou'by added.
He stressed that instability in the market would reflect negatively on the long term.
"There is increasing panic in movements in the market. There is no clear direction."
Taimur Saadat, a Senior Analyst at Arab Capital Markets Resource Centre, agreed that there was an element of panic in DFM trading.
"This is not good for the market in the long term. There are weaknesses and high vulnerability. It needs steady and stable movements to consolidate.
"We expect regional markets will consolidate in the near future. We expect Saudi Arabia's stock market to lead regional markets as it is already giving indicators for consolidation. This will have a positive impact on both Dubai and Abu Dhabi markets," Saadat said.
However, Sherif Abdul Khalek, Institutional Trading Manager at Beltone Financial, considered the high volatility in the DFM as a part of the regular trading in the market.
"There is high volatility in Dubai bourse all the time. Maybe this volatility increased recently compared to the low volatility in the ADX, but this is clearly due to increasing news about Dubai and the increasing liquidity in the market," he said.
Abdul Khalek said the DFM had high exposure to foreign and institutional investments, which created this volatility.
"There is more liquidity in DFM stocks and increasing transactions always create high volatility in the market."