The Dubai Financial Market is likely to rebound today after it retreated 14.3 points, or 0.96 per cent, to end at 1,472.96 yesterday on very low turnover, feel analysts.
This belief is based on a pattern in the movements of the index that has been seen over recent weeks.
Turnover declined sharply yesterday as 127.4 million shares with a total value of Dh123 million changed hands. Five stocks advanced while 15 declined and three remained unchanged.
"The index declined on very low trade volume yesterday," said Hosam Al Husseini, Head of Brokerage at Emaar Financial Services. "There was a general sentiment among investors not to sell at the current prices, despite some movements by speculators.
"This pattern was seen last month as the index declined for several sessions, and when the turnover reached very low levels the index rebounded on strong turnover in the next session. We expect this pattern to repeat itself."
The index would rebound on strong trading volume after the prices of the most active stocks became very cheap.
"The DFM index failed to test its resistance levels around 1,500 points but the chart is still over its support level of 1,435 points. Most stocks could close over their critical support levels.
"However there is no impetus in the market currently and the majority of investors are focusing on changes in the turnover as an indicator of changes in the general sentiment in the market."
Any increase in turnover during the next few weeks would be the main factor in changing the negative sentiment among investors.
ENBD stock was the main player in the sharp fluctuations seen on the DFM index throughout the session. There were strong movements in the stock due to wide gaps in bid and ask orders even though the volume of the deals was very low – as 10,250 shares were traded over six deals. Due to the heavy weight of the ENBD stock in the index there were high fluctuations in the charts.
Real estate continued to dominate trading in the market. The sector lost 1.16 per cent even though Emaar advanced during the session. The stock declined at the beginning to its support levels at Dh1.83 but later recovered and closed at Dh1.88 with a marginal gain of 0.53 per cent.
Arabtec continued its downturn, declining by almost its limit down to close at Dh0.95. There were an increasing number of speculative and profit-taking movements in Air Arabia and Ajman Bank which dragged them down to close at Dh0.89 and Dh0.79 respectively.
Senior financial analyst Wadhah Al Taha agreed that turnover had become a critical issue and was creating high fluctuations in the index.
"There is very high volatility in the market," he said. "There was a tendency to hold some stocks last week and investors were not selling at high rates. This behaviour changed yesterday and there is increasing selling pressure. There were rough movements in the index leading to vertical changes in the charts." He said this trend reflected the weakness of the market because the index was fluctuating on very low volumes.
"Such situations reflect a lot of disturbance among investors. We saw long-term investors turning to speculation in an attempt to narrow their losses. However speculation always has high risks and strong analysis of when to buy and sell is needed."
Al Taha highlighted the negative reaction to good results announced by some listed companies. "Fear and a lack of confidence have become the main players in the markets. Some companies, such as DIC, announced encouraging results while the market retreated.
"There are increasing fears among investors, not concerning the situation in the companies but concerning the situation in macro-economic sectors in the country."
"Government and semi-government bodies should come out and clarify the situation on a regular basis to ease such fears. If the government is not willing to inject liquidity into the stock markets at least it should inject confidence."
New local liquidity expected
The second half of the month will see new local liquidity coming into the UAE stock markets, according to Al Husseini.
He said there was a new trend as foreign institutions reduced their holdings in the markets and local investors collected liquidity in preparation for entering the markets.
"We have noticed new liquidity gathering on the sidelines waiting for a proper chance to enter the markets," he said. "Some local investors are collecting this liquidity currently in banks and brokerage firms. We expect this liquidity to start entering the markets by the second half of February."
Al Husseini said the new liquidity would change the structure of the main players in the markets.
"We expect local investors will take the lead from foreign institutions in the near future. Also individual investors will again become the active movers in the markets, rather than the institutions."