The Dubai stock index will continue its sideways trend and fluctuate in a narrow band for the next few sessions due to increased volatility stemming from speculation.
The Dubai Financial Market General Index continued to hit its resistance channel at 1,500-1,550 points but could not close in this channel for several sessions.
The market lost most of its gains during intraday trading yesterday and ended almost flat at 1492.39 points after adding 3.75 points, or 0.25 per cent. The turnover advanced slightly and remained above the average so far this month as 379.5 million shares changed hands for a total value of Dh 330.5 million. Arabtec stock continued to dominate transactions with around 25 per cent of the total traded volume. There was active trading in DFM, Emaar and Air Arabia stocks.
Analysts expect the market to continue narrow movements due to the lack of strong movers and news that may support leading stocks in the long term. "There is high volatility in the market and it is moving up and down sharply during intraday trading. However, the index closed in the up territory and this gives a positive indication that the market will be able to continue moving up," said Hesham Bakry, institutional sales manager at Al Futtaim HC Securities.
"The other main issue on the DFM is the increasing speculation in the market by both individual and institutional investors. The market is very speculative with investors moving at very low margin of quick profit-taking when there are gains of just two to three per cent. This is creating high volatility and fluctuations in the index."
However, Bakry believes market volatility results in good short-term returns for investors. "The DFM is controlled by individual investors and hot money entering the market for speculative profits. Most of the investors turned to speculation because there is no confirmation of any long-term trend. Institutions have therefore changed their strategy to invest short-term, and wait for confirmation about a long-term trend," he added.
"The DFM will continue high volatility on the short-term with investors accumulating stocks at the level of 1,400 points and selling at the 1,500 level. The index should break the 1,500-1,550 level and close over 1,500 for several sessions to give confirmation of a stable trend in the market," Bakry said.
He stressed that the stock market needed confirmation about the outlook of the economy, especially regarding the real estate and banking sectors. "For example, Emaar stock was expected to retreat during the session but positive news about the economy and government actions support the stock. News about a draft law to organise the issuance of visa for property owners in the country and the intention of Dubai Government to support real estate companies created a positive sentiment among investors regarding the real estate sector."
Bakry also called for more transparency and easy access to information about listed companies to control rumours in the market, which harmed a lot of stocks and created a negative sentiment among investors.
Hosam Al Guindi, general manager of Electronic Stock Brokerage, agreed the deterioration in the DFM reflected worries about the economy, especially the real estate and banking sectors. "The turnover is advancing but very slightly due to the shortage of liquidity, not only in the stock market but also in the real estate sector. Investors face huge difficulties in getting finance and now the only source of finance for investors is their personal earnings. Banks blocked finance for investment in the market and property. The government should intervene to end this because as long as there is a liquidity shortage, there will be negative sentiment. This will affect the whole economy in the long-term."
Al Guindi stressed that increasing numbers of investors were searching for long-term positions in the DFM, but due to the market conditions, they shifted to speculation.
"There is a real intention among investors to accumulate long-term positions. The prices of most of stocks are very long and the expected dividends of a lot of listed companies represent between 10 and 12 per cent return, which is very good at this time. However, the liquidity shortage has forced a lot of investors to make quick profit-booking."
Arabtec expected to stay bullish
Arabtec stock is expected to continue its bullishness in the short-term after it broke through its resistance at Dh 1.37 and moved higher to its next resistance level at Dh 1.60-Dh1.80. Arabtec topped gainers in the market after adding 12.12 per cent to close at Dh1.48. The stock is advancing sharply since it hit its all-time low of Dh0.71 on February 5. The stock faced strong selling pressures since the problems it had with its Meydan contract. During the last 10 sessions, Arabtec stock more than doubled its price in the market due to increasing speculation.
"There is increasing foreign investments in Arabtec during the last few sessions. A part of these movements aimed to cover short-term positions. However, both local and foreign investors turning to speculation, the stocks rapid movements are giving investors good returns," said Bakry of Al Futtaim HC. He expects the stock to continue its bullishness in the short term.