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UAE market slump deepens

The Dubai Financial Market Index closed 3 per cent down at 550.08 points, its lowest since March 2005 as the Emirates Securities Market Index slipped 2.24 per cent to close at 4,893.40 points.

The market benchmark National Bank of Abu Dhabi Index was down 279 points (2.22 per cent) at 12293.

Dubai's index has lost nearly half of its value this year, making it one of the worst performers among global stock indices tracked by Bloomberg News worldwide.

“The market is showing all signs of a prolonged bear phase and investor confidence is at its lowest. It is very likely that the trend will remain highly volatile until the second quarter results are announced,” said Daheer Quraish, an investment analyst.

“Nobody can complain about the first quarter corporate results. Fundamentally, there is nothing wrong with companies. The market has turned highly sentiment driven,” he said.

Investors and market intermediaries yesterday said that there is acute shortage of liquidity in the market as brokers and banks have virtually stopped margin trading. “More than 75 per cent of the volumes on DFM have been funded through unofficial leverage offered by brokers and banks. Nervous brokers have virtually stopped margin trading. In whatever little trading happened yesterday, most brokers were demanding payment guarantees up front,” said an investor.

Apart from the fear of a prolonged market slump, during the past two weeks most brokers were forced to withdraw the margin trading facility to day-traders in the context of a recent warning from the market watchdog Emirates Securities and Commodities Authority (ESCA).

“The warnings from the regulator has come at a wrong time as most of the speculators who used to trade large volumes on the market depended on unofficial leverage for liquidity,” said a Dubai-based investment banker.

A fund managers' meeting was scheduled for yesterday to discuss the immediate concerns of the market. Although it is not clear what the outcome of the meeting would be, some of the fund managers said they would press for stricter enforcement of lending caps by banks to stock market investors and for allowing companies to buy more of their own shares. In 11,712 transactions across the two bourses, a total of 170 million shares worth Dh1.44 billion were traded yesterday. Out of the 93 companies listed 58 reported trades and 45 shares closed lower when the markets closed.

The total market capitalisation was Dh701 billion down by more than Dh15 billion from Tuesday.

Majority of the liquid shares such as Emaar, Amlak, Tabreed and du, the newly-listed telecom share came under heavy selling pressure.

While Amlak and Emaar declined more than 4.5 per cent each, du and Tabreed shares were down by 2.3 per cent and 2.6 per cent respectively.

On the Abu Dhabi bourse, the banking sector shares reported across the board losses with NBAD and First Gulf Bank shares losing 4.3 per cent and 2.4 per cent respectively.

Since the beginning of the year, the Emirates Securities Market Index has declined by -28.46 per cent as the Dubai Financial Market index slipped 46 per cent.

The Morgan Stanley Capital International (MSCI) emerging market index which tracks the GCC countries showed a decline of 15.89 per cent in the UAE indices during the first quarter.

The decline is sharper by about 29.4 per cent for the last one year.

Currently, DFM trades at an average Market P/E of 15, down from the peak of 28 in September last year. Some of the leading stocks such as Emaar, Amlak and Tabreed trading at P/E ratios in the range of 14 to 16.

“Currently Emaar is trading at a P/E of 13.5 which is comparatively very low when it has a fair value based valuation of about Dh22,” said an analyst. Dubai-based investment bank Shuaa Capital said earlier this week that the lower valuations have so far failed to prompt sustained buying.

“People are focusing on intraday gains. Both speculators and institutional investors just buy and sell. Nobody is thinking long term,” said a broker.

In 2004 and 2005, investors in equities were driven by corporate news.

In the current year they seem to have totally ignored all corporate actions for the purpose of investments.

In the back drop of profitable experience during 2004-05 and not being used to volatility, investors are facing the dilemma of strategies to deal with bearish market during the past 6 months.

Most of the investors now rely heavily on technical charts as their basis of investments.

“Majority of small investors are clueless as to how the formula of MACD (convergence, divergence), Exponential Averages work. As a result, there is uniformity in their behaviour when it comes to buying or selling levels. Consequently, we observe that there is either sudden buying at certain price levels (or index level) or sudden selling at some price level. This behaviour pattern can take. the market either way sharply because most of the investors (individuals) follow the same strategy,” said P Krishnamurthy, a Dubai-based investemnt analyst.

Analysts and market intermediaries said yesterday that the current crisis in the market could adversely affect the prospects on new IPOs planned for this year. Arkan Building Material is scheduled to open its IPO on May 6.