Negative global sentiment affects UAE markets

The UAE's stock markets retreated yesterday amid negative sentiment from global and regional markets and a lack of positive local factors. The Dubai Financial Market lost 65.03 points, or 3.57 per cent, to close at 1,756.16 points. The general index opened with a gap down of around 50 points and continued to fluctuate in negative territory throughout the session.

Analysts have noticed a new trend emerging on Sundays as local stocks have started to move in line with global and regional markets, especially the Saudi bourse.

"There is a trend at the beginning of the week as we have noticed a strong correlation during the past few weeks with the close of the US markets on Fridays and the Saudi market on Saturdays," said Hummam Al Shamaa, an economic consultant at Al Fajr Securities. He said this correlation had become very noticeable in the absence of local drivers in the markets.

"The sentiment in global markets is influencing our markets greatly. US and European markets closed down sharply on Friday and the Saudi market closed down on Saturday.

"The DFM went down sharply at the opening yesterday even though there was no clear justification for such a severe downward movement," said Al Shamaa.

Hesham Bakry, Institutional Sales Manager at Al Futtaim HC, agreed that global sentiment was exerting more influence on local markets. "There is uncertainty in the markets at the moment as investors have no long-term strategies," he said.

"They depend on speculators or very short-term trading strategies, based on the performance on global markets. Economic news affects trading patterns greatly and the recent macroeconomic indicators such as unemployment rates in the US and Europe dragged global markets down.

"Day-to-day news leads global and local markets and we see the markets bounce up when there is any positive news while they go down on any negative news.

However, Shamaa said the correction in the local markets, which started early last month, was fuelled by some local news that was interpreted negatively by investors.

"Apart from the global impact, the correction in local markets was fuelled by news about a possible merger between Emaar Properties and the real estate arm of Dubai Holding," he added.

"Investors' reaction to the news was very negative and we saw a sell-off of Emaar stock despite the fact the new entity will be huge and of a global standard.

"The new entity will have an asset base of around $53 billion (Dh194bn) and will play a major role in creating stability in the UAE real estate sector. This is very important in terms of achieving stability in the valuation of stocks in the markets."

However Emaar was the main mover on the DFM yesterday as it lost 7.14 per cent to close at Dh2.60. The stock faced pressure from the beginning of the session after the company said it had shut its office in Algeria due to the lack of progress of its operations there. The company said in a statement: "Algeria was a market identified by Emaar as part of its regional expansion in Mena region. Emaar created designs for key developments in the country submitted to the authorities for necessary approval. Due to a lack of progress which is beyond the company's control the office set up to drive these projects forward has now been closed."

Reports suggested that Emaar's subsidiary in India, Emaar MGF, was considering reviving its IPO, which could raise around Dh 3bn.

The National Central Cooling Company (Tabreed) fell by 3.3 per cent to close to Dh 0.89 after announcing the agreement of a Dh750 million loan facility with First Gulf Bank. The utility company said the loan would be used to meet its corporate and financial obligations.

There was selling pressure on most active stocks as foreign investors – both individuals and institutions –reduced their holdings in the market.

However, analysts stressed that they were moving according to technical analysis and would return immediately when the market showed positive signals.

 

DFM hits six-month low

Turnover on the DFM yesterday fell to its lowest level in almost six weeks as 242 million shares worth Dh342.5 million changed hands. There was a clear concentration on selected stocks in the real estate sector with DSI, Deyaar, Emaar, Arabtec and Union Properties together accounting for around 65 per cent of the trade volume.

Hesham Bakry said he expected the turnover to continue to decline in the near future.

“Investors are following a wait-and-see strategy until the second quarter results start to be released,” he added. “Q2 results will be critical to reduce uncertainty in the market and help investors create medium-to-long-term views. Different investors are waiting to assess performance during the first half of the year and collect clues for the second half.”

Bakry believes the bearishness in the market might continue until global markets turn their current trend and Q2 results give positive signals for the economic performance during the rest of the year.

 

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