UAE markets are projected to continue in the sideways trend during the first week of the new year with a potential of limited upside gains in selected stocks as investors will continue to eye 2009 corporate earnings.
Dubai Financial Market (DFM) index succeeded to end the year above its important level of 1,800 points.
The index fluctuated last week but succeeded to gain 2.52 per cent throughout the week to end at 1,803.58 after moving sideways during the past three sessions.
"The index succeeded to maintain its important level of 1,800 points and this is giving some bullishness at the beginning of 2010," said Ahmed Hetta, Head of Research at Tadawul Shares and Bonds Mediation.
"With this movement, we expect the DFM index to advance to its next resistance area in the range of 1,895-1,920 points this week."
"However, the index may face some pressures during the week and test its support areas around 1,725 points," he added.
The DFM index added 10.22 per cent last year.
The market lost 7.1 per cent in December. Foreign investors were net sellers of shares worth Dh69.7 million last month.
They bought shares worth Dh5.887 billion and sold shares worth Dh5.956bn during trading in December.
Institutional investors were more aggressive sellers last months as they were net sellers of shares worth Dh471.2m. However, foreign institutional investors, especially hedge funds, are expected to inject strong liquidity in the DFM during the first quarter this year.
Humam Al Shamaa, Financial Consultant of Al Fajr Securities, said that the current valuation of stocks in the DFM would attract strong foreign liquidity soon.
"UAE markets are still lagging behind global markets. We expect foreign institutions will come back to the DFM soon due to the gap between the recovery in global stocks and local markets."
He said developed markets, especially US indices, may continue their uptrend this month and this would lead to high P/E ratios in global markets.
"This will mean that global markets outperformed the recovery in the economy and may trigger a wave of profit booking and corrections.
"However, we expect local markets to continue their fluctuations for sometimes. The P/E in the DFM is among the lowest levels in emerging markets and this will be very attractive for foreign institutions. We expect a strong recovery in the market by February or early March," Shamaa added.
He also said that UAE markets would go through calm trading in the near future as investors would focus on expectations of 2009 earnings.
"However, the prices in local markets are very attractive for long term investments and the rebound is set to be strong this year."
Abu Dhabi Securities Exchange is also projected to move sideways this week between the range of resistance area at 2,780 points and support area of 2,700 points. The ADX added 1.65 per cent last week to close at 2,743.61 points.
It gained 14.79 per throughout 2009.
"The ADX index is witnessing a descending channel since October last year and tried to rebound last week and closed in the positive area. However, this rebound was weak as the turnover dropping sharply during the uptrend in the market," Hetta said.
He said the ADX might move in the sideways trend this week in a narrow range to test its previous resistance area at 2780 points.
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