Range-bound trading amid very low volatility and turnover continued to remain the norm at the Dubai Financial Market (DFM) yesterday, as most investors took a wait and see strategy.
The DFM index closed almost flat yesterday at 1622.01 points, down by 1.92 points or 0.12 per cent. Most active stocks were moving in a very narrow range of 2-3fils up or down on low turnover. This trend was seen in the market for the second session in the week yesterday, but the trading pattern started to witness a new behaviour – that of strong gaps between sell and buy orders.
Analysts said this behaviour was a significant factor in slowing down trading activities on the DFM yesterday. However, they said the current range-bound movement in the DFM index, without strong fluctuations up or down, was a positive signal that the current level may be the bottom of the downturn trend in the market and a recovery may start from around these areas.
"The only positive sign is that the DFM is holding its support area above 1600 points while the market has entered an extremely directionless trend," said Hosam Al Husseini, Head of Brokerage at Emaar Financial Services. "As time passes and the market continues to remain in these areas, we expect this to be the bottom of the downturn wave in the DFM index. The market may rebound from here. It has already priced in most of the positive and negative news and we do not expect major movements in the near future."
He also did not expect any strong movers in the market in the near future after most listed companies announced their results. "Distribution of cash dividends or bonus shares would be the only expected mover in the DFM in the coming weeks and the impact may be limited," Al Husseini said.
Turnover remained near its lowest levels yesterday in the DFM as 91.5 million shares worth Dh120 million changed hands during the session. Emaar continued to lead the market, dominating around 23 per cent of trade values and ended the session down by a percent at Dh3.01. Air Arabia attracted good buying interest and was the top active stock by volume despite ending the session flat at Dh0.98.
Other active stocks – Gulfnav, DFM and Arabtec – moved in a very narrow range, up or down, as selling pressures or buying interest were at very low levels in the market.
"The low turnover shows that investors inside the market are not dumping their positions and are holding on until they get signs of a new market direction. Investors who cashed out during the past few weeks are also still away. This situation has reduced expectations of strong movements in the near future," Al Husseini explained.
Wadha Al Taha, a senior market analyst, said investor psyche was at low levels due to the uncertainty and confusion in the market. "This was clear in the exceptional negative reaction towards results of listed companies. For example, investors' reactions to positive results of Aramex and DIB stocks were very limited while there was no reaction to results of most of listed companies."
The DFM saw wide gaps between sell and buy orders in the market yesterday, a situation that Al Taha considered as a reason of the low trading activity. "This situation blocked trading and there were no orders to fill in these gaps, so trading stalled. In general, the deals were being closed in a narrow range, which is not profitable to speculators. The low volatility pushed speculators out of the market while investors are already on the sidelines," he said.
"Liquidity remains an issue for concern among investors and there are doubts about the availability of liquidity in the market. Central Bank data showed a widening gap between loans and deposits in the banking sector during December. There are fears that the Central Bank may put more curbs on banks to guarantee their performance this year. While the Central Bank's movements are needed, the market fears that this situation will limit credit for investments in stocks," said Al Taha.
"This situation comes at a time when the valuation of stocks in the DFM is very low and attractive to investors. The current market value to book value of most listed companies is around 1:1, which is a very attractive valuation," he said.
Gulfnav continued in the top active list for the third consecutive session yesterday, after the company resumed its buyback programme. The stock appreciated slightly and closed at Dh0.60, up by 1.7 per cent. "This is another sign for the negative sentiment in the market, as investor reaction is still negative to good activities. The buyback shows that Gulfnav's financial position is very strong, but we still did not see strong buying interest in the stock," Al Taha said.
Ajman Bank loses 2.4%
Ajman Bank suffered selling pressures yesterday and the stock lost 2.4 per cent to close at Dh0.82. This came after the bank disclosed its results from January 2007 to December 2009, reporting total profit of Dh1.1 million. The bank reported profits of Dh3m for the fourth quarter of 2009, which are the first quarterly profits of Ajman Bank. Total assets reached Dh1.9 billion at 2009 end.
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