Sunday’s crossing of the 4,000 barrier by the Dubai Financial Market in intraday trading could be the start of a further upsurge.
At one time, the DFM General Index was up 2.66 per cent, trading higher than a five-year high at 4,036.07. It was the first time since early October 2008 that the DFM has breached 4,000 points. But it erased the early gains to close only 1.10 per cent higher at 3,974.61.
Staying above the psychological barrier of 4,000 in case of DFM for a few trading sessions, amidst large volumes, can be a prelude to a renewed buying frenzy, said Talal Touqan, head of research and advisory at Abu Dhabi-based Al Ramz Securities.
Liquidity and speculation seem to be contributing to the market’s bias to the upside.
“DFM is mainly driven by speculation on mergers and higher volumes traded,” said Hisham Khairy, head of trading at Menacorp’s institutional desk. “The rest of the market is driven by the real estate sector, particularly by the expo news and contracts being won.”
Arabtec, the most active stock in terms of value traded, increased 3.04 per cent to Dh5.08. The company announced last Thursday that it was forming five subsidiaries to enable it to invest across industries in the UAE.
Others, among the top five active stocks, to gain included Dubai Investments, which jumped 4.56 per cent; Dubai Financial Market, which rose 4.43 per cent and Air Arabia, moved up 0.61 per cent. Gulf Navigation and Dubai Development Company (DDC) were the biggest gainers, soaring 14.76 per cent and 13.84 per cent respectively.
Emaar Properties and Union Properties witnessed some profit taking, dragging their share prices down 1.08 per cent and 0.56 per cent respectively.
In Abu Dhabi, real estate stocks, banks and industrials traded higher to move the index more than two per cent. First Gulf Bank jumped 6.25 per cent; Aldar Properties climbed 3.82 per cent and Ras Al Khaimah Cement and Union Cement were up 5.13 per cent and 14.48 per cent respectively. The ADX Securities General Index advanced 2.22 per cent to 4,826.39.
Caution is urged even as markets continue to make daily gains.
“Although the upsurge is definitely liquidity-driven, bullish sentiments remain the main driver,” Touqan said.
When asked if the market’s continuing rise is making it riskier, he said,
“Yes of course, as seen in the doubling of volatility levels plus conspicuous intra-day corrective movements. DFM is up almost 18 per cent year-to-date, and the profits keep on accumulating. These inputs might be riskier for intra-day traders, but equities, in general, as an asset class is still safe for longer-term investors.”
However, Khairy said, “any sign of weakness is seen as a good buying opportunity. Real estate companies and banks would be the best buys in terms of valuation at the moment.”
UAE markets clearly stand out amid the sell-off seen in emerging markets in the past few weeks. For the year, DFM gauge is up 19.28 per cent and ADX 12.82 per cent.
“Like the rest of the GCC, the UAE has a strong current account surplus and a currency which is pegged to the USD, two variables which not only differentiate the country from other emerging markets but also provide the necessary macroeconomic backdrop for robust equity markets,” said Sachin Mohindra, senior vice president and portfolio manager at InvestAD.
“The medium to long-term prospects of a number of listed companies, especially which benefit from the ongoing investment spending programme of the Government and the robustness in the trade, tourism and logistics sectors still look good,” he said.
“However, given the pace and strength of the rally we would like to caution investors that careful stock selection will play a very important role in generating investment returns in future,” Mohindra said.
“Investors should conduct thorough due diligence before investing and focus on fundamentals of companies,” he added.