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UAE markets feel the heat as global equities slump

By Matt Smith


The UAE markets lost more than 170 points between them on Monday as global equities took a battering.

With the Japanese Nikkei plunging to a two-year low and the Hong Kong and Mumbai exchanges both dropping more than five per cent, the UAE markets stood little chance of avoiding the rout.

The Dubai Financial Market lost 1.65 per cent to 5,982 points, while the Abu Dhabi Securities Market fell further, falling 1.72 per cent to 4,602. 

Analysts have long warned the UAE indices will have to find substantially higher volumes to mount a recovery, but turnover did improve on the Dubai bourse yesterday, despite the decline. This rising volume on a falling market indicates the number of sellers has increased as investors fear prices will slump even further, although brokers say most funds have remained dormant during the current downtrend.

“Volumes are not uniform during a sideways trend – the speculation pattern changes with the sentiment of day traders, so yesterday’s rise in volumes is not really significant,” said Mohamed Alami, Naeem Shares and Bonds international desk manager.

“If the index fell four per cent on volumes of Dh2.5bn, then the outlook would be completely different.”

Emaar was the main stock investors unloaded, with the property developer claiming Dh338 million of Dubai’s Dh1.2 billion turnover. This selling forced it down 2.57 per cent to Dh11.35, its lowest close since February 19. “There was foreign institutional selling of Emaar Properties’ shares,” a Dubai-based trader told Dow Jones.

The DFM’s own shares fell again, slipping 2.65 per cent to Dh5.51. It has dopped by almost a quarter since posting a record high of Dh7.05 on November 18. Air Arabia was another to struggle, plunging 3.96 per cent to Dh1.94, the first time it has fallen below Dh2 since January.

“Investors are being greedy and want to buy at the cheapest possible prices. So far this strategy is working with the market falling day by day,” said Ayman El Saheb, Darahem Financial Brokerage director of operations. Yesterday saw many key stocks falling to two-month lows, including Deyaar, Dubai Islamic Bank and Amlak Finance.

“These prices will be surely too enticing for funds and high net worth players to resist,” said Saheb.

For short-term investors, the current market malaise has been terrible, but for medium and long-term players it presents an opportunity to expand positions at discounted prices.
Investors remain spooked the ensuing chaos emanating from the
United States following the rescue of the once mighty Bear Stearns investment bank, with people wondering which venerable institution will be the next to fall.

These concerns, however, should not dampen the performance of the UAE’s booming corporate sector.

“People don’t seem to understand that markets move in cycles or that corrections are necessary. This is a cushioned decline,” said Saheb.

“It’s important to remember the market is still higher than it was in October. The correction could have been much more severe,” he added.

The ADSM’s energy, real estate and banking sectors took a beating, with the former favourites Aldar and Sorouh losing 5.16 and 2.93 per cent respectively.

“Aldar Properties was down as investors are likely factoring in a price adjustment due to the listing of new shares through a sukuk conversion,” the Dubai trader added.

The most active stocks by both value and volume fell. These included Aabar, down 5.25 per cent, and First Gulf Bank, down 4.37 per cent, while Dana Gas and Taqa both fell by more than three per cent.

Naeem’s Alami added: “Medium and long- term investors should focus on the news that counts – financial results, yields and dividends. If the quarter one results provide good news then this correction will be long forgotten. The ongoing slump provides an opportunity and the potential rewards dwarf the risks.”

It will take a bold investor to embark on a buying spree tomorrow, but if some funds start accumulating others will inevitably follow. “No one is willing to take a risk, given the news flow from America,” said Walid Shihabi, Shuaa Capital head of research.

“It will take some degree of courage for funds to open new positions, but that’s what it’s going to take to break this cycle.”

“Investors took a cue from falling world markets and there was no local news to stem the negative sentiment,” a trader at EFG Hermes told Dow Jones.

A rally in the offing, say analysts

After yesterday’s slump, investors hoping for better news should listen to Ayman El Saheb, Darahem Financial Brokerage director of operations.

“I expect a rally either today or tomorrow,” he said.

“People say I am too optimistic, but that is my gut feeling. The Federal Reserve will cut US interest rates later today, while at the same time prices are becoming extremely tempting because of the way the index has deteriorated over the past fortnight.

“The market may rebound today because funds won’t want to miss the boat, they want to lock in the best price and will try to move before their rivals, which means buying today.”

Saheb predicts the market will level off in the morning, before mounting a recovery around midday.

“I believe 2008 will be very lucrative for Gulf capital markets. In three or four months we will look back on March and see this current phase as a minor correction,” said Saheb. “This year could rival 2005 in terms of gains.”

Mohamed Alami, Naeem Shares and Bonds international desk manager, is less confident, predicting both the Dubai and Abu Dhabi markets may fall another two per cent this week.

“We are still moving in the same sideways trend of the past fortnight,” said Alami. “Trading volumes are very low compared to the 2008 average and I can’t see investors’ enthusiasm returning in the short term.

“We are still in the safe zone and there’s nothing too much to worry about. Investors shouldn’t be concerned about holding onto stocks,” he added.

Fearing the worst

While this column has emphasised analysts’ assurances the present global turmoil has little bearing on the bottom line of UAE listed firms, the youth of the domestic exchanges may be working against them.

“Most of the people involved in the UAE markets have never seen anything like this happen before, with markets crashing around the world,” said Walid Shihabi, Shuaa Capital’s head of research.

So with little past experience to call upon, investors seem to fear the worst, although first quarter results may draw their focus closer to home.

“We have full faith in the underlying drivers of our market. To break the current cycle, we have to focus on local factors driving the market and decouple from global events.”

Bourses clinging to support levels

Yesterday’s closing figures have left the Dubai and Dhabi bourses clinging to support levels.

Dubai is holding onto the 5,590-support range, but could challenge the 5,500 mark before the week is out, according to Mohamed Alami, Naeem Shares and Bonds international desk manager. “The charts indicate that we’re not going to stop at yesterday’s level on either index,” he said.

The ADSM is likely to test the 4,550-mark this week, technical analysts say.

“In the longer term, I have no concerns about the ADSM. It just needs some good news to psych up investors,” said Alami.

Abu Dhabi has suffered more than Dubai this month, because the latter’s correction hit earlier, and while Dubai’s bourse is now down six per cent for the year, the capital remains one per cent up.

“Abu Dhabi hasn’t suffered a run of three or four losses since January’s big drop,” said Alami.

“The ADSM is not as liquid as Dubai, so an aggressive seller can have a bigger effect on Abu Dhabi stocks.”

For both markets, the end of March cannot come soon enough, with April signalling the start of first quarter results and dividend payouts.

“UAE listed companies will be paying a huge amount in dividends and typically most of this cash returns to the market, with investors expanding existing positions,” said Alami.

“This should give the market a big push for two months at least.”

Companies will pay dividends from the first week of April to mid-May.