The Dubai Financial Market plunged almost three per cent yesterday as it began the week in a dismal fashion.
The bourse’s flagship stocks all tumbled to send it down 2.88 per cent to 5,249 points, its largest one-day loss for seven weeks.
The DFM’s own stock was hardest hit, dropping 6.64 per cent to Dh4.92, while Emaar fell 3.55 per cent to Dh10.85, the first time the property developer has fallen below Dh11 since early October.
Emaar’s mortgage subsidiary Amlak Finance also toiled, losing 4.7 per cent to Dh4.05, and Dubai Islamic Bank was another blue chip to suffer, sliding 2.86 per cent.
Analysts are divided over the causes of yesterday’s savage slump. Some blame it on new trading rules requiring brokerages to separate investor accounts and provide monthly reports to the regulator, ESCA.
With the month-end fast approaching, brokerages have been forced to close margin positions and this selling propelled the market downwards, they argue.
Advocates of this theory point to yesterday’s relatively mild decline on the Abu Dhabi Securities Market. The capital has fewer day traders and so suffered less than its rival, while Dubai’s major losers were also all favourites of short-term speculators.
“We expected the market to fall yesterday, but didn’t anticipate it would lose 155 points – that’s a big hit to take in one day,” said Ayman El Saheb, Darahem Financial Brokerage director of operations.
“We might see further declines today, but it should level off later this week as prices become too tempting. As long we don’t break 5,200 points we should be okay and there’s likely to be some dead cat bounce, although the month-end deadline could limit its effect. I doubt brokerages closed all their margin positions yesterday, so expect more selling today.”
Chahir Hosni, EFG Hermes sales manager, doubts the new brokerage rules were yesterday’s principal villain. “It might be a small contributing factor, but the main driver was the ongoing bearish sentiment. The lack of news is the main cause and the market needs to see some impressive first quarter figures to escape the current trend,” he said.
The new rules came into force in mid-February and trading has certainly slumped since then, although this may be partly coincidence. January’s total turnover for the DFM and ADSM topped Dh100 billion, while the combined figure for February and March is about Dh70bn.
Rumours abound that brokerages will have to submit weekly, rather than monthly, account reports, but Mohammed Ali Yasin, Emirates Securities managing director, believes positive quarterly results will counter any negative impact the new regulations may have on trading.
He said: “Day traders activity has been squeezed by the new rules, but for long term institutional investors they’re irrelevant, yet these funds have stayed out of the market.
“Hopefully the consolidation of international markets will ease the pressure on foreign investors and enable them to be more active again on the UAE exchanges.”
Saheb remains upbeat about the UAE market’s longer term prospects, citing greater stability across the Gulf and further afield as grounds for optimism. He also believes the first quarter results will spark a rally, but has called on the powers-that-be to do more to reassure investors. He said: “ESCA has done the right thing to protect investors, but its actions have negatively impacted the market. There are a lot of questions, but so far no answers. There needs to be a solution for investors, brokerages and the authorities to bring back liquidity to the market.”
A GRIM MARCH
Ongoing turmoil on the international markets, confusion over the new brokerage rules and a local stock sell-off by foreign funds have all contributed to a dire March for investors in the UAE.
“Any emerging market needs liquidity and at the moment this is lacking. The ups and downs of the market is what attracts investors, both retail and institutional, because not many people rely on dividends,” said Ayman El Saheb, Darahem Financial Brokerage director of operations.
The market has now made a near-total retracement of its most recent rally and has only twice finished lower than yesterday’s closing figure since October 29.
Saheb said: “The market is riddled with uncertainty. Was yesterday’s decline because of the new brokerage rules or is there some other factor involved we’re not yet aware of? Investors are scared and so liquidity is limited right now.”
The DFM has lost 11.5 per cent this year and widespread forecasts of 25 per cent gains for 2008 look ever more far-fetched, although most analysts remain confident that first quarter results will mark a change in the market’s performance.
“Investor confidence is low and so little liquidity is coming into the market,” said Mohammed Ali Yasin, Emirates Securities managing director.
“Nothing is likely to happen in the market until next week – we need news to kick-start trading.
SHARPEST FALL FOR DFM
Shares of Dubai Financial Market fell to their lowest close in more than two months opn Sunday.
The stock has declined by more than a fifth this month and closed below Dh5 for the first time since January 22.
“The bearish sentiment is hitting the DFM stock hard,” said Chahir Hosni, EFG Hermes sales manager.
“It is one of the most volatile stocks on the market and as a company it relies almost totally on trading volumes for its revenues, so with turnover fluctuating wildly from more than Dh5bn in January to often less than Dh1bn this month, its share price has taken a dive.”
While most analyst reports have offered fair valuations for the DFM stock that exceed Dh7, Hosni warns these were largely published when the market turnover was significantly higher.
NO RELIEF ON ADSM
Investors were able to find scant relief on the Abu Dhabi Securities Market, which fell 1.34 per cent to 4,603 points.
Most of the capital’s major stocks suffered like those of Dubai, with etisalat and Aldar Properties both falling more than one per cent.
Sorouh Real Estate was the most notable loser, however, plummeting 5.46 per cent to Dh8.14. It has now fallen by more than a quarter since posting an all-time high of Dh11 on March 6.
The end of a lock-in period for founding investors was to blame for Sorouh’s Sunday slump, according to Chahir Hosni, EFG Hermes sales manager.
This means these shareholders, which include Al Rayan Investment Company and Al Gouad Financial Investment, can now sell their stakes.
Speculators’ favourites lead major slump on DFM