Foreign institutional investors continued their active trading on the Dubai Financial Market (DFM) for the second day in a row yesterday, pushing both trade volume and value to their highest in a month.
The surprise return of foreign institutional investors to active trading on the market on Tuesday had attracted an increasing number of local funds and investors. Continuing this sentiment yesterday, trade volume on the DFM surged to 598 million shares while trade value advanced to Dh666.3 million – its highest level since January 5.
The index added 24.70 points, 1.69 per cent, to close at 1,488.64 points. The DFM opened with a gap down of 25 points, after which buying started to push the index upwards until it broke through its resistance level of 1,500 points during intraday trading. Later, the market narrowed its gains by the end of the session.
Arabtec and DFM stocks rallied to almost their upper limits for the second session, gaining 14.70 and 13.97 per cent, respectively, amid heavy buy bids from institutional investors. The session ended with ask bids on Arabtec's stock of about 5.5 million shares at Dh1.17 and there were no offer bids as investors refrained from selling the stock.
The market also attracted buying on other selected stocks, including Emaar and Ajman Bank, while Air Arabia faced selling pressure.
The sentiment among analysts continued to be cautious regarding the new liquidity entering the DFM during the past two sessions. While some were of the view that the movements by foreign institutional investors were to cover their short-selling positions after prices reached very low levels, others felt these were real long-term investments entering the market after it was oversold during the past few months.
However, there was a general agreement that this rally on the DFM would be short-lived and there will be quick profit-booking movements within the next two sessions.
"We noticed some foreign hedge funds, which were practicing short-selling on some stocks, are back now to cover their positions. They played a major role in dragging the DFM index down during the past two months," said Ziad Dabbas, financial consultant at National Bank of Abu Dhabi.
"There were heavy pressures on Arabtec's stock for the past few months and the stock declined from its peak at Dh19.20 last July to Dh0.71 last week. This was unjustified. After the company announced its results, which were better than expected, we saw real investments coming back to the market. Movement by the foreign institutional investors encouraged a segment of individual investors, who were hesitant to enter the market in the past few weeks, to inject more liquidity," he added.
Dabbas said movements by both foreign and local funds played a major role in changing the sentiment and increasing the risk appetite among individual investors.
However, he said the DFM would not be able to continue this rebound for a long time because there are no changes in the fundamentals in the market and there would be profit taking very soon.
"There is a negative sentiment in global markets and we saw most international markets retreating in the past two days. The same negative sentiment exists in the UAE markets and there will be profit-booking pressures very soon," he added.
Waleed Al Khateeb, trading manager at Daman Securities, said the current movements by the funds were based on technical analyses rather than fundamental changes in the markets. "Arabtec's stock has lost more than 60 per cent since the beginning of the year and its rebound was expected. We must note that foreign institutions and funds suffered deep losses in their investments in global markets. They do not have high cash reserves for long-term investments and they are not willing to increase their exposure in the markets. This sharp movement will be followed by quick profit-taking," he said.
However, Al Khateeb warned that the market is oversold and the prices of listed stocks have reached very low levels. "This situation amplifies any movements by investors in the market. The index can fluctuate sharply at very low trade volumes or values, and this is clear in the current situation."
Breakthrough needed to confirm rebound
The DFM index needs to break through its resistance level of 1,500 points at high trade value of over Dh800 million in order to confirm a strong rebound in the market, said an analyst.
Amjad Bakir, trading manager at MAC Sharaf Securities, expected institutional investors to continue their accumulation on some stocks in the market, especially Arabtec stock, during today's session. "It is very important for this buying trend to push the DFM index to close above the 1,516-point level at high trade values ranging between Dh800m and Dh1bn. The value will be critical for the trend in the market at the current stage," he said. "If the market can close above 1,516 points then it will be able to advance to its next resistance level at 1,578 points. Arabtec's stock should also break its resistance level at Dh1.25 to continue its rally to the next resistance at Dh1.33."
However, Bakir expected profit booking would start by the end of today's session or early next week.