Khaleej Times - 29/4/2006

Driven by fear and greed, the UAE bourses witnessed another round of sharp fall in share prices yesterday with key indices closing at 13-month lows.


The DFM index fell by 4.84 per cent to 586.51, the Abu Dhabi Index dropped 1.93 per cent to 3,811 points the lowest since March last year.

After going through a sharp fall on April 23, the market rallied the following days to regain some of the lost ground, however the rally was short lived as investors started selling heavily from Wednesday.

“The investor confidence is at the lowest level in the last two years. While speculators are trying to sell their holdings at the first opportunity to cut losses, institutional investors, especially the funds sponsored by the banks also rush to exit when there are opportunities to take profits,” said Daheer Quraishi, a Dubai based investment analyst.

The market yesterday had more sellers than buyers on all liquid counters such as Amlak, Emaar, Tabreed and Dana Gas. “The sentiments are very weak and investors are unwilling to hold on to their positions. The market is exhibiting all characteristics of a long-term bear market with all investors having very short-term outlook,” said P. Krishnamurthy, an independent market analyst.

“Investors are already nervous after a 42 per cent slide in equity prices this year and must be wondering how the near term will play out. However, the market is providing some guidance from a technical perspective. Having struck a new one-year low, the market appears to be testing longer-term support at around 584. If this level is punctured, next support levels are below 400,” said a technical analyst.

Analysts said short-term stochastics show the market to be oversold and this may offer some respite to investors in the form of a brief rally. The next few weeks will be decisive in shaping the overall trend that still appears to be firmly bearish and investors who attempt to buy the bottom of the market should be cautious in trying the call market pivot points. Typically markets tend to overreach either in a rally or a crash before settling back into a long-term trend.

Currently, DFM trades at an average Market P/E of 17, 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.

“At present Emaar is trading at a P/E of 14.5 which is comparatively very low when it has a fair value based valuation of about Dh22,” said Murthy. The UAE market reported a total turnover of Dh2 billion yesterday down by more than 28 per cent from the previous day.

DFM traded more than 209 million shares worth Dh1.92 billion. In the services sector Aramex reported the biggest loss of more than 7 per cent as Emaar and Amlak slipped 3.85 and 3.9 per cent respectively. The newly listed telecom share Du was caught up in the selling spree and closed 6.8 per cent down at 6.17. Other liquid shares such as Tabreed, Shuaa and Union Properties were down more than 4 per cent yesterday.

Brokers and leading institutional players expect the market to remain highly volatile in the weeks ahead. “All were expecting the first quarter results to lift the sentiments. On the contrary we have seen the markets recoiling. There is a serious issue of investor confidence and it is difficult to say what will trigger a sustainable rally,” analysts said. The market has been witnessing wild gyrations in share prices since the beginning of this year because majority of investors are following flawed analyses of market trends based only on technical analysis.

While DFM's market turnover is dominated by small investors (about 75 per cent), many of these investors follow technical charts and ignore the fundamentals and corporate actions. Such one-sided view of the market by the majority results in these wild swings.

According to DFM brokers, the vast majority of speculators on the market who are not used to a bear market are struggling to cope with the new reality. The recent clamp down on margin trading by Emirates Securities and Commodities Authorities (ESCA) have also dampened the market. “Until recently significant volumes came from leveraged trades. Esca has warned many brokers against such practices drying up a major source of liquidity for speculators,” said a source.