The Dubai Financial Market fell more than 100 points yesterday as it suffered its biggest one-day reverse for five weeks.
Optimism was high that the DFM could build on Monday's gains, but there was heavy selling instead, with yesterday's performance underlining the fact that share prices are often at the mercy of outside events.
The DFM plunged 1.78 per cent to 5,560 points, crashing through a supposedly major support at 5,600. Yesterday's close is Dubai's lowest since April 16. "This should be a temporary issue, but the market has been moving in a tight range on slumping volumes. It was looking to break out either up or down and so doesn't need any kind of bad news," said Mohammed Ali Yasin, Emirates Securities managing director.
Turnover was the highest for a week at Dh1.1 billion and more than double Sunday's as investors sold up abruptly.
Yasin: "It seems foreigners started to sell and others followed. Speculators and day traders also panicked because they had bought on margins and didn't want to get stuck and so cashed in positions in case this is part of a longer downturn."
Dubai's big five all fell, with Dubai Islamic Bank taking the biggest tumble to fall 4.56 per cent, while DFM Company was not far behind, losing 3.42 per cent to Dh5.36, its worst close for two months.
Emaar and Emirates NBD slipped 0.89 and 2.89 per cent respectively. "We did think the Dubai market has gone up a bit too much on Monday and so expected some profit-taking, but not to such a large extent – all the popular stocks fell to take the index down," said Sanyalaksna Manibhandu, Emaar Saudi Financial Services head of research.
He said investors were mistaken to punish Dubai Islamic Bank for the ongoing woes of its property affiliate Deyaar, saying DIB was a good bank and so some investors will use its current decline as a buying opportunity.
"The difference between Abu Dhabi and Dubai yesterday was perhaps the make up of shareholders – Dubai has more foreign representation and they panicked, which led yesterday's sell off," said Manibhandu.
Dubai's five most active stocks all retreated. Air Arabia's top spot on the volume chart could not stop it falling 2.1 per cent to its lowest close since mid-April, while DFM, Dubai Investments, Gulf Navigation and Deyaar all ended in the red.
Emaar's mortgage subsidiary, Amlak Finance, has been one of Dubai's worst stragglers of late. Amlak fell 1.65 per cent yesterday to take its losses to 7.4 per cent since June 2. The banking sector was hardest hit, followed by investment and transportation.
DIFX fails to escape
The Dubai International Financial Exchange could not escape the savage fall of its sister index, with three out of four active stocks retreating.
Depa was worst hit, plunging 3.25 per cent to $1.49, its worst close since May 15 and 3.9 per cent below its initial public offering price. DP World steepened its descent, falling 2.17 per cent to $0.90, its lowest finish for more than two months as 1.8 million shares changed hands. NetSol, which debuted on Monday, also struggled, slipping 0.68 per cent, but Kingdom Hotels increased 0.31 per cent after enjoying a rare trade.
Today will be difficult to call, say analysts
With Dubai back in the red and its technical props seemingly providing scant support, what are chances of an immediate recovery? "Today is difficult to call – the market will hopefully move sideways for a couple of days, but if it continues to descend at the same pace as yesterday, then this will result in banks making margin calls," said Mohammed Ali Yasin, Emirates Securities managing director.
The latter scenario would add to the downward pressure, but investors are perhaps more likely to adhere to the notion that where there is crisis there is opportunity, particularly long term players who will exploit the latest fall to accumulate select stocks.
Unfortunately, this is unlikely to drive a market rebound, because these buyers will move slowly to avoid pushing up prices.
However, if the market takes another big fall tomorrow, then this should quicken the recovery as more investors aggressively snap up bargains. In the longer term, Sanyalaksna Manibhandu, Emaar Saudi Financial Services head of research, is optimistic about Dubai's overall prospects. "Dubai will recover, but it's unlikely to mount a serious rally until late September and October when foreign investors return in a big way, just like they did last year. The UAE is a very seasonal market."
He believes Dubai will gain around 15 to 17 per cent this year. Manibhandu added: "Dubai's fundamentals are not as bad as the market is suggesting right now. It just happens to be that Abu Dhabi has cheaper price to earnings ratios and superior growth prospects in 2008."