Dubai bourse retreats on global cues

A surprisingly deep correlation with global markets has intensified the downturn pressures in the Dubai Financial Market (DFM) after strong corrections in US, European and Asian indices.

Weak sentiment and concerns among investors over fourth quarter earnings added more pressures in the market, which ended its Monday bounce quickly and sank yesterday. The DFM index lost 58.22 points, or 3.61 per cent, and closed at 1556.08 points amid sharp downward movements in leading active stocks, especially Emaar, Arabtec and DFM.

The index dropped on negative sentiments in global markets due to increasing concerns about the speed of the economic recovery. The market witnessed a return of deep correlations during a downturn in global markets, while it was de-correlated during the upward trend.

“This surprise correlation with global markets is very worrying,” said Wadha Al Taha, a senior market analyst. “The DFM was de-correlated during the past few months and nobody expected the return of correlations to this extent. The sudden return of correlation is worsening market sentiment as global markets are facing strong corrections.”

He explained that global markets rebounded sharply last year and early this year, so their correction was expected and justified.  “The main issue in the global markets is that stimulus packages by major governments were directed at supporting stock markets rather than the real economy. This situation created a large gap between prices of stocks and the performance of the economy. This correction in global markets has been expected since last October or November,” Al Taha said.

“However, the situation is different in the DFM as the market did not show a strong rebound from its previous bottom and the current pressures are very disappointing. We hope this new correlation will ease soon. The DFM index is facing a critical area around 1500 points and if it breaks below this level, the market sentiment will deteriorate significantly.”

Al Taha also highlighted the low turnover in the market as a positive factor that the DFM might stabilise soon. “The sharp losses in the market are not based on significant turnover so any coming rebound in the DFM index will be strong.”

Turnover remained low, with 229.8 million shares worth Dh359 million changing hands. There was a retreat across the board after 23 stocks declined, while four advanced and three remained unchanged. All active stocks went down yesterday in a general negative sentiment.

Emaar and Arabtec continued to dominate more than 50 per cent of the total turnover. However, both stocks created the highest pressures on the DFM index yesterday. Emaar lost 7.64 per cent to close at Dh2.90 after it went down sharply to Dh2.83 during intraday trading. Arabtec also dropped by 7.52 per cent to close at Dh2.09.

There were increasing selling pressures in the market yesterday as activities in the two stocks increased. Foreign investors were net sellers of shares worth Dh7.2m during the session. They dominated 48.46 per cent of the total purchase deals and 50.46 per cent of the total sell deals.

Most of listed companies have not disclosed their fourth quarter results and 2009 earnings so far and this situation is worsening the sentiment in the market. Despite companies still being within the legal disclosure period of 45 days, the relative delay in disclosures is adding more pressures on the DFM and increasing worries and rumours.

Also, results announced so far in global and regional markets have been disappointing, which has triggered the correction in global markets. Based on this, investors in local markets are changing their previous expectations and preparing to face a worst-case scenario.

This situation was clear yesterday in the high selling pressure on the Union Properties stock, which was the top loser with the daily maximum of 10 per cent. This came after recent reports were very negative about the company’s financials.

“I think the Securities and Commodities Authority should amend disclosure rules in local markets and reduce the period to a maximum of 30 days instead of the current 45 days,” Al Taha said.

CBD ADVANCES AFTER RESULTS

Commercial Bank of Dubai advanced slightly yesterday to close at Dh3.75 after the DFM resumed trading in the stock. CBD advanced through only one trade of 10,000 shares.

The market had suspended trading in CBD shares until it disclosed its 2009 results. The bank reported net profits of Dh803m in 2009, up by 4.1 per cent compared with 2008.

The banking sector is facing pressures for several weeks now amid negative expectations that local banks may need to increase their provisions in the financials.

However, most banks that have released results so far have showed increases in their profits and announced plans for cash dividends, which are expected to ease investors’ concerns.

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