Low turnover leads to limited upside correction in stocks

The UAE stock markets are expected to witness an upward correction this week after six weeks in the grip of a bearish trend.

However, this bounce-back will be constrained due to the lack of strong movers, liquidity shortage and prevailing speculative trends.

Analysts feel the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) have reached oversold areas after continuous downtrends and this increases expectations of a positive correction in the markets in the short-term, though the general trend remains towards the downside on the bourses.

The DFM index lost 3.2 per cent and closed at 1599.43 points last week amidst bearish trends in leading active stocks. However, the index was able to maintain its support area of 1540 points, which is giving signals that the market could slow down its bearish trend in this area.

"After the DFM maintained its important support areas, we have reached a significant shift. Buying interest should now have the upper hand in the market rather than selling pressures," said Hosam Al Husseini, Head of Brokerage at Emaar Financial Services.

"The market has faced continuous selling pressures and downturn movements since mid-December, which have now eased. So buyers will be the movers in the market in the coming period," said Al Husseini.

Foreign investors remained sellers in the market last week. They bought shares worth Dh839.42 million and sold shares worth Dh954.98m. They were net sellers of shares worth Dh115.56m. Institutional investors were also net sellers of shares worth Dh41.05m.

"Despite these selling pressures from foreign institutional investors in the market, local investors were buyers and the turnover remained at low levels.

"We did not see strong panic selling in the market," Al Husseini said.

"We think selling pressures from foreign and institutional investors have reached very low levels, which will have limited impact on the market.

"The issue now is buying interest, as major investors are on the sidelines and there is confusion so they are not ready to inject new liquidity in the market. They are waiting for listed companies to announce their 2009 results to decide their future investments," he said.

"This is supporting expectations that the DFM may witness a period of calm trading and stability in a narrow range between 1540 points and 1630 points in the coming few sessions. The turnover is also expected to continue at low levels as speculators and daily traders are in control of the market."

Ahmed Hetta, Head of Research at Tadawul Shares and Bonds Mediation, agreed that the DFM might witness an upward correction to test its resistance area of 1630 points this week.

"Technical analyses show that the market is oversold which is giving indicators of upward movements.

"However, the DFM index is facing an important resistance level and the trend will depend on its ability to break through this level.

"If the exchange's index goes up above the 1630 points it can witness a strong rally to 1725 points. Otherwise it can go down again to its support area of 1540 points," he explained.

The ADX index retreated slightly last week to 2628.17 points, down by 8.56 points. The market remains in the downside trend but is expected to witness limited upside movements at low turnover," he said.

"The ADX is also oversold and may go up slightly. The market is expected to continue fluctuating at low volatility in the range of 2550-2700 points in the near term," Hetta said.

The general trend, according to Al Husseini, remains in the downside, as heavyweights in the ADX are holding the market while the performance of active stocks in the real estate sector is expected to vary from one company to another.

Sorouh was the first real estate company to announce its results in both the DFM and the ADX last week.

The company announced net profits of Dh482.8m, a 74 per cent drop compared with net profits of Dh1.858 billion in 2008.

"Sorouh's results were surprising but its stock price had already discounted these results. The stock is trading near its bottom and we do not expect strong pressures in the stock market," Al Husseini explained.

"Leading active stocks in the real estate sector are expected to vary in their results. The performance of Emaar so far shows positive expectations for its results. Union Properties is confusing for investors while there is a wide range of expectations about Aldar. These differences are clear in the current performance of the stocks," he added.

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