Absence of liquidity along with increasing speculation hit the Dubai Financial Market yesterday as a two-day rebound ended with a sharp retreat.
The index lost 48.49 points, or 2.76 per cent, to close at 1,708.53. Volume declined to 147.8 million shares worth a total of Dh230.4 million. The real estate sector experienced selling pressure, with Emaar, Arabtec and Union Properties dominating the list of losers. Three stocks advanced out of 21 traded, while 17 declined and one remained unchanged.
Analysts expect sideways trading to continue on the DFM during the first quarter due to the lack of incentives for investors to inject more liquidity into the market.
"The DFM declined due to the negative performance of global markets," said Noor Al Zoby, General Manager of MacSharaf Securities. "We saw the US and European markets suffering large losses at the beginning of the week, while Asian stocks declined sharply yesterday."
He highlighted the role of retreating oil prices in increasing negative sentiment among investors in local markets.
"There is very limited liquidity and investors are turning over this liquidity several times during a session," added Al Zoby.
"This trend can be seen clearly in the high fluctuations on the market on a daily basis.
"The market will continue on a sideways trend until listed companies clarify their positions. The 2008 results are due within the next few weeks but the market has already priced in the expected negative results for the last quarter.
"The critical issue will be budgets for 2009 and expectations for the performance of listed companies during the current quarter because these would reflect the situation in these companies.
The real issue is that investment in the market is still amateur and investors depend on rumours rather than facts," Al Zoby said.
"Institutions have insufficient liquidity to build long-term portfolios due to the current market conditions, so they have shifted to short-term and speculative trading."
Hosam Al Husseini, head of brokerage at Emaar Financial Services, pointed to a strong shift in behaviour by institutional investors.
"Some institutions were turning over the same liquidity during intraday trading – they were buying at the beginning of the session and selling at the end. This is rare and serious behaviour by institutions."
Sideways movement expected to continue on ADX
The Abu Dhabi Securities Exchange retreated 30.21 points, or 1.2 per cent, yesterday to close at 2,484.6 after selling pressure hit a number of stocks including Aldar, Sorouh, Methaq and CVI.
Turnover remained low as 88 million shares with a total value of Dh204.3 million changed hands. Active stocks – Aldar, Sorouh and RAK Cement dominated the session.
The sideways trend is expected to continue because movements in heavyweight stocks such as etisalat and NABD are limited.
Nadine Wahbe, a senior analyst at Orion Brokers, highlighted the increasing speculation in insurance stocks. "Day traders who are keeping an eye for any stock with upcoming news, regardless of its nature or whether it is positive or negative, are increasing their dealing in insurance stocks.
"Their sole aim is to find stocks that will generate volatility, as they can then benefit from the difference in prices via multiple transactions on a daily basis.
"The movements of a stock such as Methaq led to appreciation in its price of around 92 per cent during the previous nine sessions. However, the stock declined sharply by around 8.3 per cent yesterday," she said.
Wahbe added that the ADX was seeing a similar story to that of the DFM – continuous sideways trading and low volumes and trading values – giving the bears a chance to prolong their domination of both markets.
"Stocks are trading in a range with no depth in the prices," she added. "This is due to a lack of differing expectations in the market between buyers and sellers."
Wahbe said the markets were taking a pause pending the announcement of results even though much of the expected drop in profits had already been discounted in the prices.
DFM to test 1,809
The DFM is set to test its resistance level of 1,809 points, according to Orion Brokers.
The Abu Dhabi index recently broke its support of 2,675 points to make a bottom at 2,237 points. Resistance remains at 2,600-2,700 points and the current support level is 2,230 points.