Rising volumes enabled the Dubai bourse to move slightly higher, despite losers outnumbering gainers by two to one to leave it one session away from completing a full week of gains for the first time since April last year.
The Dubai Financial Market edged up 0.24 per cent – or four points – to 1,536, extending its winning streak to five sessions, although the index may be running out of steam as investors book quick profits.
It opened strongly to surge nearly 20 points in early trading, but this prompted immediate selling to drag the index back into the red. Happily, this sparked a slight rebound, which gathered momentum as the session wore on to hit a high of 1,560. This gave to way to a second wave of selling to drag the index down to its close and some analysts warn of a weak opening today, particularly after the Saudi Tadawul ended its week on a sour note after falling 0.15 per cent.
"There are still bears in the market that are driven by the technical charts rather than fundamentals, and many still think we could go down to new lows," said Sanyalaksna Manibhandu, Emaar Saudi Financial Services head of research.
"They say this could see the market fall to the low 1,400s or 1,000 or maybe even 800 points, based on what the charts tell them."
Emaar pulled the index higher, with property giant climbing 0.99 per cent to Dh2.03. It was up 4.5 per cent at its intraday peak of Dh2.10 and so will be vulnerable to further selling today.
Dubai's other blue-chips struggled. DFM Company and Dubai Islamic Bank fell 1.12 and 0.56 per cent, while Emirates NBD was unchanged for the second time this week. Like Emaar, the latter also retreated from impressive early gains, which shows that investors are scared of being stuck with stocks bought at higher prices.
Fourteen Dubai stocks faltered, compared to seven that made gains. Many of the liquid stocks that enjoyed some of the best gains during the present rally succumbed to selling, although none suffered the calamitous falls so familiar during the market collapse of September to mid-January.
Top trader Arabtec slipped 1.62 per cent to Dh1.21. The construction firm saw Dh99 million of shares change hands, which is almost a third of the market's total of Dh324m. Emaar's Dh76m placed it second, followed by DFM Co with Dh51m.
Bank results will decide fate in the medium term
Banking results will determine the medium fate of the UAE stock markets, according to Sanyalaksna Manibhandu, Emaar Saudi Financial Services head of research.
"In terms of fundamentals we are still waiting for more results. Yesterday's figures from First Gulf Bank were a pleasant surprise," said Manibhandu.
"If other banking stocks show a decline in quarter on quarter numbers it will be okay, providing it's not an enormous drop."
However, the fourth quarter banking results will be far from the full story and investors will be nervously waiting to discover whether there will be a decline in asset quality of UAE lenders in the first quarter. This will only be revealed when the Q1 figures are announced in late April and early May, although bullish full-year profits will help calm investors' nerves in the meantime. Dubai's medium term target will be this year's intraday best of around 1,950 points, which is possible if banks deliver, Manibhandu believes.
"Banks account for 42 per cent of UAE market capitalisation and so if we're happy with the banks then it will be a winner for the rest of the market, but if banks don't have such good numbers, with increased provisions because of a decline is asset quality, it will be hard for the DFM to get above 1,800 to 1,900 in the next six months or so,"said Manibhandu.
Declining asset quality essentially means an increasing risk of defaults or delayed payments by the banks' borrowers, forcing lenders to make larger provisions to cover potential losses.
"If banks aren't happy they won't lend and so there won't be enough liquidity for the property market," said Manibhandu.
"People put money into stock markets last, so a bad banking climate will mean equities will struggle to make much headway. Every 100 points we advance has to based on fundamentals, with technical people changing their positions accordingly."
Technical traders may be encouraged by the market's present rally, together with improved volumes of the past two sessions, but a turnover of around Dh300m is paltry when compared to 12 months ago when daily trading rarely fell below Dh1 billion. This means these technical traders are unlikely to advise clients to enter the market at present.
Improving fundamentals and substantially volumes will be required to change their mind, Manibhandu believes.