The Dubai Financial Market (DFM) retreated with a mixed trend yesterday, losing 17.34 points, or 1.12 per cent, to close at 1531.33 points. Turnover declined sharply compared to last week as 290.1 million shares were traded at a total value of Dh366.8 million.
Selling pressures continued on active stocks, including the DFM, Arabtec and Emaar stocks. DFM's stock lost 5.64 per cent to close at Dh1.17, Arabtec slumped 3.87 per cent to close at Dh1.49 and Emaar's stock declined 1.94 per cent to Dh2.02.
The leading loser was Union Properties' stock after it plunged 8.33 per cent to Dh0.66. Shuaa Capital also faced selling pressures and its stock declined by about 4.21 per cent to Dh0.91.
However, the banking sector rallied during the session with Dubai Islamic Bank adding 5.37 per cent to close at Dh2.16 at high turnover.
Commercial Bank of Dubai's stock also advanced by 3.85 per cent to Dh4.05.
There was heavy buying on DIB stock, a trend considered by some market analysts as a move by institutional investors to adjust their portfolios by adding more shares of the banking sector.
This was the fifth consecutive session of decline in the DFM index. The decreasing turnover was an indication that selling pressures were retreating in the market's downturn. Analysts blamed high volatility and aggressive speculations for the increasing fluctuations in the DFM index.
"The DFM index faced very strong fluctuations during the last three months, reflecting nervous trends among investors as they are not taking long-term positions in the market. Quick profit booking still dominates the market and this is increasing volatility. However, most speculators suffered losses during the last few months because of their quick movements, as they were making profits in one deal while losing in two or three other deals. Historically, successful investment in stock markets is a long-term affair," said Ahmed Al Rawi, analyst at Dubai Financial Services.
"With the decline in turnover, speculations will be very risky. We expect this period of sharp fluctuations in the DFM will end soon and the market will go through a period of stable trading during the second half of March," he added.
Al Rawi said the trend in the market would depend on two important factors.
"Results of the first quarter this year will be very critical in changing the sentiment among investors and regaining confidence in the market. The trend in regional and global markets will also be decisive for the DFM. We have seen that the correlation between the DFM and global markets is declining, but any sharp movements in global markets will still affect local markets."
He also highlighted the lack of liquidity for long-term investments in the market. "Individual investors are away from long-term investments while institutional ones are already suffering from a shortage of liquidity disabling them from taking long term positions. This was clear in the speculative nature of institutional investments recently," Al Rawi said.
Wadah Al Taha, a senior market analyst, agreed that quick speculative movements were the main factor behind sharp up and down trends in the DFM. However, he blamed institutional investors for creating a pattern of investment in the market that is harming all investors.
"The speculative behaviour of institutional investors over several months turned out to be a continuous pattern in the market. There is a clear tendency towards quick profit booking by all investors. Individuals justify it as a way to compensate their major losses during the past six months."
Al Taha added that fund managers were turning to speculations as a way to beat the index and achieve profits in the near term in order to show strong results in the first quarter for their managements and clients.
"This is very risky as statistics show that 60 per cent of speculations end up with losses. Fund managers have adopted short-term investments as a continuous strategy while, in fact, this is not the strategy of their institutions or clients.
"There was some positive news about the outlook of Dubai, especially after the recent bonds issue and the contribution of the UAE Central Bank. The impact of this news was short lived in the market because of repeated quick profit bookings," Al Taha said.
"Funds are working on short-term strategies to satisfy their immediate needs and I think this is contradictory to the standards of banks and institutions that control these funds. There should be immediate action, because the speculation has turned out to be very risky for the market. This strategy should be addressed by the higher management of banks and institutions."