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Bearish spell continues

DUBAI — The UAE stock market came under heavy panic selling yesterday as the investors rushed to the market to cut their losses. The key market indices hit their five-month lows yesterday with the market benchmark National Bank of Abu Dhabi Index closing 3.73 per cent down at 15,474 and the Dubai Financial Market Index closing 5.87 per cent down at 891 points.

In value terms, the total market capitalisation slipped more than Dh30 billion yesterday with the overall losses mounting to Dh100 billion during the past one week.

“The market is totally oversold. The panic was evident as a large number of investors rushed to sell. The decline this time is much more than a normal market correction, it is almost a crash,” said Dhaheer Quraish, General Manager, Essham Securities.

Speculators and investors with heavily leveraged positions were seen hurrying to sell. While the markets were booming many of the brokers and banks were allowing their clients to take up leveraged positions with virtually no margins. The sharp decline has prompted many of them to compel their clients to sell and square off their positions.

“Margin calls by banks have accelerated the market fall. With the indices heading south in the recent weeks, banks are insisting on margins that have prompted many to opt for distress sales,” said a DFM broker.

Under the heavy selling pressure, DFM transacted close to 115 million shares worth Dh1.4 billion as the total UAE market turnover hit Dh1.7 billion yesterday. Many analysts believe the current crisis is the result of investor belief that companies would not be able sustain last years spectacular growth. Brokers and the investing community also blamed companies for not distributing bonuses in line with their performance.

“Companies should have supported the market sentiments through appropriate corporate actions such as distribution of bonuses and cash dividends,” said P. Krishnamurthy, a Dubai based market analyst. Investors took out their fury on Amlak and Emaar yesterday forcing these shares to slip 10.7 per cent and 4.4 per cent respectively.

The UAE market which thrived on huge liquidity for the greater part of last year is suddenly short of funds. The huge (about Dh30 billion) withdrawals by Saudi and Kuwaiti investors in the last quarter has added to the market’s woes.

“Liquidity is thin on the market. Large and frequent rights issues have drained large amounts of liquidity from the market. There are a few more large issues lined up for the first half of this year. The market watchdog Emirates Securities and Commodities Authority (Esca) should intervene to reduce the number of these rights issues to save the market from further tightening of liquidity,” said Quraish.

The huge losses on the markets are expected to pose settlement problems for brokers and banks in the days ahead, market sources told Khaleej Times yesterday. “The decline during the past two days have been so sharp that there are many who have not squared their positions which is going to pose settlement problems for a few banks and brokerages,” said a broker.

According to market sources, even those who opted to sell and settle their positions, had to incur heavy losses as many shares lost in the range of 5 to 9 per cent during the past one week.

“The speculators are clearly a worried lot. Institutional investors are moving with the index. There is huge selling pressure on them as they look for opportunities to sell and enter cheap on a future date,” said a broker.

Looking from both fundamental and technical analysis, analysts said DFM could find support at 800 points level as the NBAD General Index at 14,000 mark. However, if the panic selling continues, many expect the institutional investors to buckle under the selling pressure driving the markets down further.