Low turnover and sideways trading are expected to be the main feature on the UAE stock markets for the next two months, according to analysts.
The pattern will continue at least until the release of first-quarter results, which will be decisive in changing the bearish trend in the market.
The Dubai Financial Market index retreated 32.98 points, or 2.17 per cent, yesterday to close at 1,487.26. Turnover was low after 164.4 million shares worth a total of Dh161.1 million changed hands. Gulf Navigation Holding was the only stock that advanced during the session, while 16 stocks declined and five remained unchanged.
There is widespread agreement among analysts that the 2008 results disclosed so far are satisfactory, but the lack of confidence and shortage of new liquidity dominated trading yesterday – and this situation is expected to continue for the next few weeks.
"So far the results for 2008 have been positive overall, though there are some negatives when comparing the figures for the last quarter of 2008 with those for the same period in 2007," said Amr Diab, head of institutional sales at EFG Hermes.
"However, investors have become less interested in 2008 results and are focusing on expectations for performance during 2009."
He said there were increasing concerns about the global economic situation and its impact on the local economy.
"The majority of trading is speculative and short-term investments by individuals, while institutions are making very cautious movements. This is clear from the calm trading in the market, which will continue for a long period.
"Investors need to get a clear view about the future of the economy because most active listed companies are related to the property and banking sectors, which have suffered the major hit from the global financial crisis. They need more confidence about the outlook for the economy before taking long positions."
Diab said results for the first quarter of this year would be critical for restoring investors' confidence in the markets, but this would take a long time.
Amjad Bakir, Trading Manager at Mac Sharaf Securities, said the DFM opened marginally positively but then fell throughout the session on continued selling pressure and the absence of good news.
"The market is still below the neckline resistance of 1,550 points and it should close above 1,620 to give indicators of a change in its trend to the upward side," he said. "However most active stocks closed lower and look to continue the bearish trend. This may create more pressure on the DFM to retreat towards its near support level at 1,400 points."
Bakir agreed the results announced so far gave positive indicators but said the shortage of liquidity was the main factor shaping trading patterns.
"There is a severe shortage of liquidity and we saw investors turning over the same liquidity several times during the same session. Major investors and institutions are still suffering from liquidity constraints and this is affecting their ability to take long positions."
He said the correlation with international markets was a major factor behind the bearish trend in the UAE markets.
"There is a pattern in global stock markets as they advance for one session and then retreat for three or four sessions. We see this pattern taking place here in both Dubai and Abu Dhabi."
Bakir said the selling pressure currently affecting some stocks after they announced positive results was expected due to profit-taking movements.
"We noticed speculators collecting these stocks in previous sessions before the companies announced their results and then turn to profit-taking immediately after the disclosure regardless of whether or not the results were positive."
"Most investors, individuals and institutions are making short-term trading movements based on technical analysis. Despite expectations the UAE Central Bank will inject more liquidity into the banking system, the impact of such measures need at least six months to be effective in the markets."
Bakir repeated his call for strong intervention by the government or sovereign wealth funds to inject liquidity directly into the markets to bring the bearish trend to an end.
"All individual and institutional investors are taking short-term positions in the market," he added.
"Last week foreign investors purchased shares worth Dh483.5m and sold Dh 490.7m. Institutional investors bought Dh269.3m and sales reached Dh 245.5m.
"This shows that the same liquidity is buying and selling within few sessions and investors are not holding long-term investments in the market."
Dividend lifts Gulf Nav
Gulf Navigation Holding was the only stock that advanced on the DFM yesterday after the company announced its board had recommended that eight per cent of its capital should be distributed in cash dividends.
The company said in a statement that its general assembly meeting would be held on March 5 to discuss the financial statement for 2008. The stock gained 5.55 per cent to close at Dh 0.57 after it gained more than eight per cent and jumped to Dh 0.61 immediately after the announcement was made during intraday trading.