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29 February 2024

UAE stocks in for lacklustre trading amid mixed trends

An Emirati trader at the Abu Dhabi Securities Exchange. Investor reaction to fourth quarter results has been mildly positive. (ERIK ARAZAS)

By Sreenivasa Rao Dasari

Stock markets in the UAE are expected to trade in a narrow, sideways range this week, as a mixed trend comprising positive global cues and a lack of major local triggers looms over them.

Analysts felt that having already priced in the 2009 fourth quarter results, the UAE markets may witness a brief period of lacklustre trading until a major positive trigger emerges.

Wadah Al Taha, a senior financial analyst, told Emirates Business: "The markets may move in a narrow range of sideways movement in the absence of any major trigger after the spell of weak trading seen recently. The challenge for the markets is Dubai World's restructuring plan. So far, rumours have clearly affected the Dubai and Abu Dhabi bourses. I don't think trading volumes will be high and I expect lower volatility in some stocks."

The fourth quarter results, which were neither encouraging nor disappointing, have thrown a lifeline to the markets with investors reacting mildly positively to the announcements. The Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) were moving in positive terrain with limited gains until they were hit by unexpected rumours, which affected trading sentiment.

With the 45-day period for announcing the fourth quarter results ending, the number of companies that remain to announce their results will influence trading sentiment. "The fourth quarter results will continue to influence the market, as about 25 companies, including Arabtec and DFM, have not announced their results even after the stipulated time period has elapsed. This will generate some volatility," said Al Taha.

Rumours had overshadowed the other factors in the market after it had priced in the fourth quarter results, leading to repeated losses. However, the recovery led by Emaar and other stocks snapped the prevailing downward movement.

Market players are still in a wait-and-watch mode though, until a clear picture emerges about the rumours. As soon as Dubai World's restructuring becomes more transparent among investors, it will send a clear message and creditors will calm down concerns in the market, Al Taha felt.

"We are seeing increasing global reports about Dubai World's payment situation. A clear time line will resolve the issue. Any news regarding restructuring or any plan about the ongoing issue will ease pressure on the UAE markets. Strategic reports from global houses now reflect this concern as they advise a stay on investment decisions in the UAE," he said.

"We will see some changes in dividend plans as adjusted by managements based on Central Bank's rules. If any reduction in dividend happens, I think the stocks in question will face pressure," said Al Taha.

Both bourses in the UAE have been witnessing thin volumes, indicating lacklustre trading from all the quarters, particularly foreign and institutional investors.

During the previous week, the DFM General Index rose in three sessions and fell in two, recording a net gain of 2.99 per cent or 50.21 points, to close the week at 1625.99 points. Over at the ADX however, despite its rise in three sessions out of five, the general index retreated for the week. It lost 22.63 points or 0.82 per cent, and closed at 2766.63 points.

Foreign investors purchased Dh570 million worth of shares accounting for 47.8 per cent of total buying and sold shares worth Dh542.4m or 45.5 per cent of the total selling on the DFM. Institutional investors bought Dh237.6m worth of shares, accounting for 19.9 per cent of the total and sold shares worth Dh234m, constituting 19.6 per cent of the total selling recorded on the bourse.

Robert McKinnon, Chief Investment Officer at ASAS Capital, said: "Going by prevailing market conditions, there's no reason to buy or sell as the market lacks direction. I expect this to continue until clarity is restored about Dubai World's restructuring plan."

Global markets and oil prices may boost investor sentiment on the UAE bourses this week. US stocks closed the week with their best performance of the year so far and the Dow Jones ended three per cent higher, while the S&P 500 climbed 3.1 per cent – the best performance for the two gauges since late November. The Nasdaq, meanwhile, rose 2.8 per cent, its best weekly showing since late December. US stocks rose on Friday as investors took the Federal Reserve's discount rate increase as evidence that the financial system is healing, but worried the eventual withdrawal of easy money would hurt Wall Street.

However, investors were not convinced by the Fed's reassurance that its benchmark rate will remain near zero for an extended period of time. Latest US inflation data, which showed consumer prices rose less than expected in January, seemed to support the view that the Fed was not facing urgent pressure to raise its benchmark fed funds rate, which stands near zero and has helped fuel a broad advance in stocks.

Crude oil prices, after rising 12 per cent for two weeks as promising economic reports in the US and troubles abroad pushed money into energy commodities, are expected to move further upwards this week. Crude closed in on $80 a barrel on Friday as investors focused on an ongoing refinery strike in France and reports of Iran building a nuclear weapon. An extended rally in oil will force petrol and other fuel prices higher as well. This may improve market sentiment as it will boost stocks across the region.


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