The Dubai Financial Market yesterday failed to maintain the bounce that started the previous day as it lost almost all the gains it had made.
The DFM continued the rally as trading began but the trend then reversed strongly and the index retreated throughout the rest of the session.
The index advanced to 1,474 points before declining to 1,440.69, a loss of 33.7 points, or 2.29 per cent. However it was still trading in its short-term support channel at 1,445-1,420 points. Turnover declined significantly as 170.3 million shares worth a total of Dh169.9 million changed hands. Most active stocks plunged during the session as 18 retreated and four advanced.
Arabtec, Emaar, DFM and Air Arabia were the main active stocks during the session, providing around 80 per cent of the turnover.
Arabtec continued to dominate trading, accounting for around 40 per cent of the total turnover and a third of the total deals during the session even though the DFM suspended trading in the stock at midday when the company's board began a meeting.
The directors later issued a statement saying they had reviewed the unaudited financial results for 2008 and decided to hold the annual meeting on March 28. Arabtec announced a 77 per cent increase in profits to Dh945m compared with Dh 535m in 2007.
The stock had seen strong fluctuations during the last few sessions as there was strong selling pressure among institutional investors last week, a trend that reversed this week.
Arabtec maintained its rally from the beginning of the session, defying the trend in the market, and advanced 2.29 per cent to close at Dh0.89. However the stock has lost 61.5 per cent of its value since the beginning of the year.
"Arabtec's results were better than expectated and this will lead to further advances by the stock," said Humam Al Shamaa, Economic Consultant at Al Fajr Securities. "The sharp decline in Arabtec stock during the last two weeks was unjustified. There are worries about the company's future performance in light of the cancellation of some deals. However, Arabtec always works with top developers and this will support its future operations."
Du stock fluctuated sharply on the day it announced 2008 results that exceeded expectations. The price rallied to Dh1.85 immediately after the start of trading at low volumes and continued to move up and down before retreating to Dh1.8 by the end of the session, losing 2.17 per cent.
"Quick profit-booking is being blamed for the decline in the DFM index as the market wiped out its gains from the previous session," added Al Shamaa. "Deep negative sentiment is still dominating the market and it pushes investors into creating selling pressure on the index after any bounce due to expectations that the rebound will not continue for long.
"The shortage in liquidity is still the top issue in the market as we see the same liquidity turning over several times in the same session. However, the decline in turnover during the downturn in the market gives positive indicators that investors are not selling at low prices.
"The movements in the market are extremely cautious and this is leading to quick profit-booking. Real investors are still outside the DFM and the index could not maintain its gains because there were no strong investors entering the market. This situation will continue until the index changes direction."
ADX continues low turnover
The Abu Dhabi Securities Exchange continued to see only slight movements up and down yesterday as the index advanced 17.83 points, or 0.82 per cent, to close at 2,199.64.
The index could break through the 2,200 level during intraday trading and looks set to advance to its next resistance level at 2,275 points in the short term.
Turnover remained at a low level with 129.5 million shares with a total value of Dh210.5 million changing hands. Active stocks including Aldar, Sorouh and Abaar advanced.
Al Shamaa said the Abu Dhabi government's decision to support local banks with an injection of Dh16 billion had helped to ease the negative sentiment in the capital's bourse.
"We have seen calm trading on the ADX and expect this trend to continue on the short term," he said. "However, any strong declines in the DFM will affect trading on the ADX because the sentiment among investors is still very negative."
He said the impact of efforts to improve the capital adequacy ratios of banks would need more time to reflect positively on the equity markets.
Al Shamaa said the rally in some construction and building materials stocks was the result of reports of a sharp decline in building costs.
"There are expectations that the low cost of building will fuel demand for building materials and will enable developers to benefit from the decreasing building costs. This is clear from the rally by some stocks."
But Al Shamaa added that the rally was speculative in nature because some investors holding large stakes in companies were directing the trend in the stocks.