The Dubai Financial Market retreated yesterday amid a sharp decline in turnover as speculators dominated trading, while institutional and major investors remained on the sidelines waiting for the fourth quarter results.
The general index lost 11.68 points, or 0.64 per cent, and closed at 1902.65 following a day of cautious movements by investors. Analysts say the market is lacking strong catalysts at present and the 2009 results will be the main mover in the coming weeks.
The DFM opened in positive territory but quickly turned downwards as most active and leading stocks faced selling pressure. All stocks in the most active list retreated and this dragged the index down sharply by around 1.5 per cent during intraday trading. However, leading active stocks, especially Emaar, DFM and DIB, managed to narrow their losses during the last hour and this reduced the index's losses.
Turnover dropped sharply with 176.5 million shares worth Dh383.6 million changed hands during the session. This was almost 47 per cent down compared with Sunday's session. "The DFM is seeing cautious movements and some selling pressure on selected stocks because the index was unable to break through its critical resistance of 1,830 points after trying to do so several times during the past few sessions," said Ahmed Tabbo, Financial Analyst at Darahem Brokerage. "The market will face a downturn trend in the near future but should maintain its critical support area around 1760 points."
Tabbo said there was a deep shortage of liquidity in the market at present stage as trade values had dropped sharply.
"Investors are currently divided into two categories. Those who bought during the past two months are holding their positions because they bought at higher prices and are not ready to sell at present.
"The other category have cash and are still outside the market. They are expecting further drops in prices and they wait to build up new positions at lower prices. The DFM is currently trendless and speculators and daily traders are making very cautious and quick movements. This behaviour is leading to losses among small investors during the current downturn."
Tabbo said the lack of drivers in the market was the main reason for the caution and uncertainty among investors.
"The Q4 and full-year results will be the main catalysts in the market. However, there are negative indicators as listed companies in Saudi Arabia have started to announce results that are mostly negative and some have reported losses. This is deepening negative expectations about the results of UAE companies, which is pushing stocks down."
However, Humam Al Shamaa, a financial consultant at Al Fajr Securities, said the negative picture in Saudi Arabia would not be repeated in the UAE.
"The important thing is that there were very optimistic expectations about the results of Saudi companies, while the actual results were in line with the global economic situation. The problem is with the expectations and not the performance of the companies. I think expectations about UAE companies are more realistic.
"The main focus in the UAE will be the banking sector, especially provisioning. This will be a cornerstone of the response to exaggerated media campaigns against Dubai. If banks reach a settlement to restructure Dubai World's debt they will not need to add more provisions to their financial statements. I think foreign institutions and investors are waiting for this data to decide their future level of investment in the UAE markets."
He said the shortage of liquidity was a result of worsening confidence and the sharp decline in margin trading.
"Consumer confidence in the UAE is down in general and this has affected sentiment among speculators and small investors who mostly depend on bank loans to invest in the stock markets."
Arabtec most active stock
Arabtec remained the most active stock on the market as it accounted for a third of the total turnover. The stock faced selling pressures for the second consecutive session after the announcement of Aabar's plan to acquire a 70 per cent stake in the company.
Arabtec was also the biggest loser on the DFM as it retreated 3.35 per cent to close at Dh2.60 after falling sharply to Dh2.53 during intraday trading.
Foreign investors have put strong selling pressure on Arabtec during the past few sessions as their total stake in the company has dropped from 32.23 at the beginning of the year to 28.19 per cent yesterday.
Humam Al Shamaa said the selling pressures was due to a negative interpretation of the acquisition deal.
"Though the agreement is very positive in terms of Arabtec's long-term outlook, investors reacted in a nervous way. They are focusing on the lack of transparency from both companies about the deal. I think this reaction will be short term because the deal is positive."
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