Correlation with global markets and a lack of local movers are projected to create further pressures on UAE indices this week amid weak sentiment in the markets.
Banking stocks tumbled around the world during the past three sessions amid negative results of top US banks and the US administration's plan to overhaul big banks. This led to a wave of severe corrections in global markets which fuelled the negative sentiment among local investors, according to analysts.
Dubai Financial Market (DFM) is facing a critical support area of 1640 points this week. The DFM index came very close to this level on Thursday and succeeded to bounce and ended the week above this level at 1652.26 points. However, the index lost 55.11, 3.2 per cent, last week amid continued drop in the turnover.
"The DFM is facing critical area of 1640 points this week and the market almost tested this level on Thursday," said Ehab Rashad, Trading Manager Direct Broker for Financial Services. "The impact of global markets was very clear on Thursday and we expect the correlation will increase this week.
"The downtrend in the DFM is continuing and there are no signs so far that the market is changing its trend. Global and regional markets rallied during the past year and the DFM is trading near its previous bottom and this is giving negative sentiment among investors who are staying away," said Rashad.
Ahmed Hetta, Head of Research at Tadawul for Shares and Bonds Mediation, said the DFM was facing strong pressures during the past year and this was leading to sharp fluctuations and continuous drop in the turnover.
"Global and regional markets realised strong rallies. Stock markets in Saudi Arabia, Kuwait and Egypt could break their downtrend and rally but the DFM remains near its bottom. Currently, the sentiment in global markets is very negative and local news will be critical to support the DFM index."
Foreign investors bought shares worth Dh598.2 million last week and they sold shares worth Dh570.6m. Net foreign investment on the market reached Dh27.6m as aggregate buy. Institutional investors were also net buyers of shares worth Dh58.9m last week.
"Despite buying on some stocks, investors in general are on the sidelines waiting for more news. Earnings and 2009 results will be the main movers which may help the DFM to break the correlations with global markets," Hetta said. However, Rashad warned that the negative sentiment among investors might cause further confusion in the market even if 2009 results might be better than estimated. "Last week Arabtec announced positive news about new contracts and the market showed good reaction for a very short period before pressures on the stock returned. Such behaviour does not help the DFM index to bounce up. We expect pressures on the market during the first half of the week before it can bounce up."
Abu Dhabi Securities Exchange (ADX) is also expected to move in the same direction with the DFM at lower levels. The ADX is facing deep shortage in liquidity and the trade values are very low which giving negative indicators.
"Foreign investors reduced their presence in the ADX while local and regional investors are waiting for new movers. Leading active stocks in the real estate sector including Aldar and Sorouh are facing downside pressures and this is increasing the negative sentiment in the market," Hetta said.
Rashad sees that UAE stock markets in general need governmental support at the current stage to reduce the global impact. "There was a clear governmental support to the banking sector since the beginning of the crisis but we did not see such support to the stock markets which are the mirror of the economy."
"There is a critical need for a governmental or semi-governmental body to enter the markets and support the trend. We reached a critical stage and the markets need immediate support."
New investment opportunities will arise in 2010 as developers reassess focus and objectives.
Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.