The Dubai bourse is ripe for the sudden, dramatic entry of smart money, according to Ayman El Saheb, Darahem Financial Brokerage director of operations.
'Smart money' is loosely defined as any investors with enough liquidity to manipulate a security. For example, imagine a stock with a daily traded volume of 10 million shares. If an investor – be it a foreign or local fund, high net worth investors or a group of traders working together – was to suddenly buy 20m of the stock's shares in one day, this would cause the price to surge and therefore attract a swathe of other players keen to bag a slice of the action.
The original investors would then be able to sell to these newcomers to earn a quick profit. "Any smart money will come in fast and could be on a hit and run basis," said Ayman El Saheb, Darahem Financial Brokerage director of operations.
"It all depends how other investors react. If such a move attracts lots of other traders, then there's no hurry for the smarts to leave the market, because the longer they stay the more money they will make as prices go up." Saheb cites Dubai's stable prices and day traders' current fixation on Abu Dhabi as compelling bait for the smart money, which will now be able to make a big splash.
Dubai hit a floor at 5,600 and now has 5,850 in its sights after enjoying two days of gains. The latter barrier could be broken if liquidity returns, but it is impossible to say when this will happen.
"The smart money could come in fast and furious and take people by surprise. I think we are gearing up for such a phenomena, if not this week then by early June," said Saheb. Smart money would kick-start the market and the entry of 'smart' foreign investors in autumn last year was credited with driving Dubai Financial Market's dramatic fourth quarter rally, which saw it surge 40 per cent in the final three months of 2007.
Looking ahead, Saheb believes both domestic UAE exchanges will make further gains in June, saying he is more optimistic than many other analysts who have predicted stale trading will persist until after Ramadan, which is some four months away.
The DFM can also hope for some bounce from its two-day London road show which ended on Thursday.
Locals lead spike
Local and not foreign investors are believed to have led the spike in trading on the ADX, with these players focusing on real estate and energy, but also foodstuffs and materials suppliers.
Saheb said: "People are targeting slow trading stocks and moving them, causing others to jump on the bandwagon. Investors are heading towards the ADX in the short to medium term."