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07 December 2023

Profit-booking takes steam out of last week's rally

By Mohamad Al Kady

The UAE's stockmarkets retreated yesterday under strong profit-booking pressure following last week's rally.

The Dubai Financial Market (DFM) opened around 30 points lower and then advanced sharply to reach its resistance level at 1,524 by midday. But it failed to maintain its upward trend and then plunged until the end of the session, losing 30.46 points, or 2.02 per cent, to close at 1478.40 points.

However, there was active trading in the market and the turnover was bullish as 376.8 million shares changed hands at a total value of Dh422.1 million. The average trade value since the beginning of the year has been around Dh297m.

Emaar led the list of the most active stocks.

However, the stock created heavy pressure on the DFM index as it lost eight per cent to close at Dh1.84. Emaar rallied at the beginning of the session to reach its support level at Dh1.92 and hit this level 10 times during midday trading, even advancing to Dh1.93.

But it then declined on strong selling pressure until the end of the session. Emaar account for 22 per cent of the index.

Arabtec was among the most active stocks, breaking through its resistance level at Dh1.33 to rally at Dh1.36. But it later lost all its gains and closed slightly down at Dh1.29.

The same story was repeated by other active stocks, including the DFM and DIC.

"The market suffered the impact of Emaar's negative results and the stock retreated strongly by eight per cent," said analyst Wadhah Al Taha.

"Emaar represented 28 per cent of the total trade value. However, selling pressure on Emaar did not cause the stock to close at the limit down and this was positive, because the stock is already oversold."

He said the heavyweight ENBD stock advanced 3.2 per cent during the session and this created resistance in the index and reduced the negative impact of Emaar's fall.

"There was a considerable rally in selected stocks last week after the turnover surged sharply by 250 per cent due to new liquidity from foreign institutions entering the market," added Al Taha. "There was a rally in the turnover targeting Arabtec, DFM and DIC. But the trend reversed yesterday as we saw increasing selling pressure on these stocks."

Al Taha said the index tried to maintain its rally during the first half of the session but failed to do so and turned to the down channel until the end of the session.

Amjad Bakir, trading manager at Mac Sharaf Securities, said profit-taking on selected stocks and selling pressure on Emaar created most of the negative sentiment in the market. "The turnover could not continue to increase after it reached more than Dh660m last week. Trade value would have had to increase to more than Dh800m to maintain the rebound in the market, and this is not happening now.

"The value declined and selling pressure is increasing. The DFM index could not close above its resistance level and now is moving in the descending channel to its next support level at 1,420 points."

He added that Emaar was still the bellwether in the market and any sharp movements in the stock could change the direction. "This was clear during the session as the stock tried to go over Dh1.92 but failed. There was also increasing speculation on the stock during the session, which increased pressures on the DFM index.

"Speculators were selling heavily by the end of the session and these movements affected Emaar as it was holding at Dh1.90 but suddenly dropped to Dh1.84."

Al Taha said there might be more pressure on Emaar stock during the next few sessions due to movements by speculators and institutions. "Investors should wait for the next meeting of the Emaar board meeting before taking any investment decisions," he added.

"Despite the company announced its preliminary results we do not have detailed information about its financials and we should wait before taking any decisions to buy or sell," said Al Taha.

Warning Against Following Foreign Institutions

Analyst Wadhah Al Taha has warned local investors, individual and institutions, against imitating the movements of foreign institutions, a course of action that he said had harmed the markets in the past.

"The real issue is that local investors are repeating the same mistakes and they are imitating trading trends by foreign institutions," he added.

"International funds are not allocating certain volumes in specific markets, they are moving from one market to another according to their investment strategies."

He urged local investors, especially institutions, to avoid copying foreign institutions and said they should instead focus on the fundamentals of listed companies. "We should have our own criteria and measures for our investments in the markets.

"We should believe in the macro-economics of the country and the strong characteristics of the economy regardless of movements by foreign investors. They are buying and selling whenever there is a chance to achieve profits here or there. Local institutions should lead the trend in local markets and reduce the impact of movements by foreign institutions."