Despite the general positive sentiment in the Dubai Financial Market (DFM) after the Dubai bonds programme, quick profit booking and the sharp decline in global markets created high pressure on the DFM index yesterday, dragging it down 63.17 points, or 3.82 per cent, to close at 1589.81 points.
The index faced strong profit booking pressures from the beginning of yesterday's session after it had rallied almost eight per cent in the previous session. Selling pressures hit most active stocks, which rallied on the positive news of the $20 billion (Dh73.4bn) bonds programme announced by the government.
Profit booking movements hit the DFM yesterday for the second time since the beginning of the week, creating very high fluctuations on the index. Analysts said the movements were expected after the market rallied strongly during the previous session. The bounce was so strong that they predicted it might continue for some time.
However, regional and global developments created more psychological pressure on investors, as US, European and Asian markets declined to historical lows, while all GCC stock markets retreated except the Abu Dhabi Securities Exchange.
Turnover remained at high levels during the decline on the DFM, with trade volume reaching 780.1 million shares worth Dh1.08 billion. DFM, Arabtec and Emaar stocks remained the top active players in the market and all three suffered strong retreats of 9.52, 9.74 and 3.22 per cent respectively.
"Despite positive news in the UAE economy, the sentiment and confidence in the markets are still very weak. Apart from profit booking, there was very negative news about the global economy. We saw global markets declining sharply. Oil prices also retreated and this situation created severe uncertainty among investors in the UAE markets," said Ziad Dabbas, Financial Consultant at National Bank of Abu Dhabi.
"Also, GCC markets declined yesterday and this deepened uncertainty among investors who preferred to sell their positions in the DFM and wait for a clearer vision of the situation. Locally, banks are still reluctant to introduce more financing facilities for investors in the stock markets. There were some facilities recently, but they did not create strong liquidity in the markets. Banks still need to inject more credit for their customers to invest in stocks," he said.
Dabbas also blamed speculators for the high selling pressures and strong fluctuations in the DFM index. "Speculators returned to play a very negative role in the market. Their movements are very quick in and out of leading stocks and this is creating concerns among all segments of investors.
"We still need speculators at the current stage because they are the main source of liquidity in the market. However, they should slow down their movements because they are turning over the same liquidity several times during the same session. This is creating uncertainty and concerns among investors, especially small investors who cannot keep up with these quick movements," Dabbas added.
He said the strong impact of speculators on the DFM would decline when institutional investors started to inject more liquidity for long-term investments. "Institutions turned speculators recently and their impact on the market reduced. They should reverse their strategy to long-term investments.
However, Dabbas predicted that this situation would continue for several weeks due to the lack of any strong news in the near term and a cloudy outlook for the global economy.
"Most listed companies have announced their financial results for 2008. The nearest expected movers in the market are results for the first quarter of this year, which will be critical for investors. The results are expected to show the performance of companies during the global financial crisis. However, we do not expect the markets to react immediately. There may be a period of stable and calm trading during the second quarter before UAE markets go through sideways trading by the second half of the year," Dabbas said.
However, Hosam Al Jundi, General Manager of Electronic Stock Brokerage, said the profit booking movements were a natural development after the aggressive rally in the DFM.
"The index rallied sharply by almost eight per cent on Monday and it was natural to slowdown the pace of recovery. In fact, this retreat is good for the market at the current stage because the general trend is still in the downward."
He explained that continuous rallies in the index might lead to severe declines in the market. "It is acceptable that the index lost a part of its aggressive gains. Any declines now will be limited to the near term."
Nasdaq Dubai timings
Nasdaq Dubai has announced amendments to its opening times, after consultation with its members and other participants in the market.
The market said in a statement that starting from March 22, the exchange would extend its timings by three hours, and operate from 10am to 5pm.
"Starting from March 27, 2009, the exchange will no longer trade on Fridays. As a result, the trading hours of the exchange will be 10am to 5pm from Sunday to Thursday."
It added that these changes would enable the exchange to focus on a full five-day trading week, like other international and regional exchanges.