Investors tepid towards bonus offers

The announcements of cash and stock dividends by a few UAE listed firms failed to enthuse investors as the good news was eclipsed by global and regional developments.

The market reaction to the corporate earnings has been very limited and the positive sentiment short lived.

It is as though the market has totally ignored the 2009 results of a few corporates, resulting in a return of bearishness. Ironically, the reaction was also mixed and unexpected, as some listed companies that announced losses witnessed rallies while others that showed positive earnings faced sell-offs.

For example, Abu Dhabi Commercial Bank (ADCB) rallied despite the company announcing losses of Dh512.8 million for 2009.

Analysts termed it "satisfaction rally" as investors were relieved at the bank's clean-up of its balance sheet.

However, the rally in the stock ended abruptly.

According to analysts, several local, regional and international factors are influencing the sentiment on the DFM and the ADX at present. These trends have overcome the expected impacts of positive results and cash dividends in the markets.

"In general, the 2009 results were positive and cash dividends exceeded expectations among investors," said Ehab Rashad, Trading Manager at Direct Broker for Financial Services. "Investors were expecting bonus shares rather than cash dividends due to the shortage in liquidity in most listed companies. Cash dividends were better than expected but the main issue is the negative sentiment among investors."

He explained that investors were still expecting a further downturn in the UAE markets in the next few weeks and this was pushing them out of the markets at the current stage.

"Many are selling even during rallies. They have ignored 2009 earnings and preferred to stay outside the markets to accumulate stocks at lower prices."

Ziad Dabbas, Financial Consultant at National Bank of Abu Dhabi, agreed that investors have ignored the cash dividends and the reaction was very limited in the markets due to uncertainty and confusion. "Some companies announced good cash dividends, which were very positive compared to current stock prices in the markets. This is very good return on capital, compared with returns on deposits in banks, for example," he said.

"However, investors have ignored both earnings and cash dividends because the global and local economic situation is not clear."

The markets are witnessing an exceptional period of uncertainty, locally, regionally and globally, said Dabbas.

Fadi Al Said, Head of Mena Equities at ING Investment, explained that regional and global developments were pushing major investors and institutions to rotate their funds in different markets.

"In fact, there were limited worries about listed companies in the UAE markets that have announced their results so far.

"In general, most of them are small companies, which have had narrow impacts on the indexes. Leading stocks have not announced their results so far," he said.

"Listed companies in other regional markets also announced strong cash dividends, especially in Qatar and Saudi Arabia.

"This was pushing foreign institutional investors to rotate their funds in the region," said Al Said.


Blue chip

All eyes are on the earnings of leading active stocks, especially Emaar on the DFM and Aldar on the ADX, during the coming seven sessions until the end of the stipulated disclosure period ending February 15, according to the rules of Securities and Commodities Authority (SCA).

"The real estate sector is still the leading mover in the markets and investors are waiting for results of Emaar and Aldar, in addition to the banking sector on the DFM. Any surprises will be critical," said Fadi Al Said.

Ehab Rashad agreed that surprises in leading active stocks could create strong movements in the markets. "However, the impact of potential surprises will be limited to one or two sessions as investors will return to their normal trading pattern due to the impact of other local and global factors."

Analysts also expect rumours to plague the markets this week with several companies announcing their results. This will open the way for speculators and daily traders to increase market volatility.

"We expect a wave of rumours this week. Unfortunately, some firms wait until the last day of the disclosure period to announce their results and this opens the way for speculators to spread rumours in the markets," he said.

 

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