With the Dubai Financial Market (DFM) index touching the year's low yesterday, market players have reason to cheer as many stocks on the bourse have become attractive enough to take fresh positions in for short- and long-term investments.
Several stocks are trading way lower than their 52-week highs as the year-to-date loss on the DFM stands at 15.11 per cent. This, analysts say, is a pointer towards a strong technical rebound.
With the DFM general index shedding another 3.06 per cent, or 48.39 points, yesterday, to close at 1531.15 points - its lowest close in more than 14 months - stock valuations have become more attractive. On March 18, 2009, the DFM index had closed at 1508.05 points. The same trend continues in the UAE capital's bourse, where yesterday the Abu Dhabi Securities Exchange (ADX) general index dropped 1.97 per cent and closed at 2552.99 points, netting a fall of 51.18 points from the day before.
Market heavyweights Emaar, Arabtec, Emirates NBD, Salama, Air Arabia, FGB, NBAD, ADCB, Aldar and Sorouh are trading lower in the range of 24 to 44 per cent on the UAE bourses. This indicates a possible rebound is in sight, as any positive news pertaining to the micro and macro economy should trigger a decent rally that can take the market to the next level.
With yesterday's close of Dh3.15, Emaar is trading 37.12 per cent lower than its 52-week high of Dh5.01. Realty stocks on the DFM were trading lower in the range of 30 to 71.87 per cent, while banking stocks were trading 40 per cent average lower.
However, the UAE bourses are the most attractive in the region, as their single-digit price-to-earnings (P/E) ratios are the best among the GCC bourses in the present market uncertainty. The DFM is the most attractive in the region with a P/E ratio of 9.38, while the ADX's ratio is hovering at 9.42, as against the average GCC P/E ratio of 12.82.
The Saudi Arabian stock market has the highest P/E ratio of 15.17, followed by Kuwait with 14.45, Muscat with 11.26, Bahrain with 11.19 and Qatar 10.22. Despite positive local fundamentals, the markets have slipped into a bearish phase following developments on the global stage, such as deepening worries about the euro zone's economy.
The UAE markets need a good positive trigger to give a fillip to the sentiment and not follow falling global markets. With the DFM general index dropping by more than three per cent yesterday, a near-term bottom is in place and fear is giving way to reason and a decrease in risk aversion. Investors traditionally have short memories when it comes to positive factors, such as encouraging second-quarter results and Dubai World's debt restructuring plan.
Global repercussions of the European economic crisis are impacting UAE and regional markets negatively. However, while the US and Asian markets have taken a severe hit, the influence is comparatively minor on the UAE markets. Also, the rise of the US dollar is good for the UAE economy.
"The low volumes are not supporting upward movements in the market. In the present scenario, one can buy stocks but not sell them so easily. The Nakheel bond repayment news and Dubai World's restructuring plan influenced the market positively, but they are no longer triggering any boost in the trading," Vyas Jayabhanu, Head of Al Dhafra Financial Broker, told Emirates Business.
After du's rights issue, its shares started moving down and are now trading at Dh2.17, 48 per cent lower than du's 52-week high.
The global financial turmoil started by the Greek crisis eventually also spread ot the region and to the UAE's markets. With Spain, Portugal and Ireland in the euro zone also affected, and with Fitch actually downgrading Spain, the GCC's exchanges seemed to have hit an irreversible slide.
However, concerns about the euro zone may not continue to impact the UAE markets much further, as they have held up when compared with other emerging markets and turned out to be attractive platforms to build up fresh positions for short and long-term gains. The upside now is that the present market conditions are attracting day traders in large numbers, resulting in more speculative trading on the DFM.
By Sreenivasa Rao Dasari
© Emirates Business 24/7 2010
