Dubai's bourse advanced by almost three per cent during the first session of the week yesterday amid relatively active trading as turnover reached nearly double the level achieved last Thursday.
The Dubai Financial Market index added 41.25 points, or 2.88 per cent, to close at 1,474.40. Turnover advanced significantly as the volume increased to 302.4 million shares worth a total of Dh346.4 million.
Arabtec, Emaar and DFM stock dominated trading throughout the session. Emaar advanced 6.62 per cent to Dh1.93, while DFM stock advanced 7.79 per cent to Dh0.83.
Arabtec continued to be the most-traded stock on the market as 111.6 million shares changed hands, including one deal of 11 million shares. This indicated that institutional investors were buying the stock strongly after they created heavy selling pressure on Arabtec during the previous two sessions.
The stock advanced 14.47 per cent, almost the up limit, to close at Dh0.87.
Arabtec advanced within the first five minutes to reach its limit up and then faced profit-booking pressure by midday. Later the stock advanced again by the up limit.
Arabtec's board of directors will meet today to review the results for the financial year ending December 31, 2008. The board will agree a date for the company's annual meeting. Fadi Al Saeed, head of Mena Equities at ING Investment, said Arabtec's bounce was predictable after the stock had faced heavy pressure since the beginning of the year.
"Arabtec lost 66-per cent of its value this year," he said. "It is oversold and the bounce was expected. However, this active trading in Arabtec is a natural result of increasing news and rumours about the company, especially regarding its financial position.
"For example, its receivables account reached Dh3.2 billion last September. There are increasing worries about developers in the country and their ability to pay this money to the company."
"Arabtec was implementing a 'block the cost' policy by paying for all building materials once any deal was signed. With the current sharp decline in the cost of building materials the company will face a problem regarding the cost of its inventories, while developers are demanding a chance to renegotiate the deals according to the current prices," added Al Saeed.
Al Saeed said Arabtec had inventories worth Dh620m last September and a revaluation would lead to the writing off of around Dh300m. He said other companies that faced uncertainty over their operations in 2009 would find themselves in the same situation as Arabtec.
"We have two categories of listed companies this year. Those with strong operations will be able to maintain their revenues and achieve profits to handle the global financial crisis. Others will face deteriorating situations in their operations. However, the UAE markets in 2009 will be stock-pickers' markets as listed companies which are expected to show strong financials will rebound and advance.
"Companies with uncertainty in their financials will continue at the current level or may face further declines in their prices, but the decline will be limited because the markets are already oversold."
Al Saeed expected that the real estate and banking sectors would continue to face pressure due to conditions in the world economy.
He highlighted a new trend among investors of focusing on the results for the first quarter of 2009.
"Investors in banking stocks are waiting for the results of the first quarter so they can analyse non-performing loans, which are expected to increase sharply."
However other sectors are achieving strong levels of performance, including transportation, communications and services. "There are companies that will appreciation including Air Arabia and Aramex because the decline in oil prices will help them to achieve strong profits. Also, food companies will show continuing profits."
Al Saeed said uncertainty and sideways trading would continue to dominate the DFM during the next few weeks until a major development occurred that could change the market trend.
"Several listed companies have not yet announced their financial results for 2008.
Air Arabia offers good opportunity
Air Arabia offers a sound investment opportunity as it is good on fundamentals as well as on the technical charts, said MAC Capital Advisors.
Shiv Prakash, a technical analyst at the company, said the carrier was trading on the DFM index well above its strong support levels.
"If the stock has a breakout from the resistance area of Dh0.95 we could see a sudden rise to Dh1.10 and then later to Dh1.20 in the short term," he added. "From a long-term perspective this stock offers a sound investment opportunity. Long-term investors can also buy it on dips to average down the cost," Prakash said.
He said the stop-loss level of the stock was Dh0.85.
Air Arabia is the first low-fare airline in the Middle East and North Africa. It has a good reputation for the quality of its operations.