Regional bourses buck the trend

Dubai: Lately, the regional markets, including the UAE, have bucked the global trend of recent rallies. But, they have gone down almost everytime there have been a sell-off in global markets.

In spite of the appreciation of prices on global stock markets after China announced the $586 billion stimulus package on Sunday, there was a decline here yesterday, the second day of the trading week. It was the same the week before the US elections.

Most markets around the world had witnessed some corrective bounce in anticipation of a Barack Obama victory, but markets in the UAE and other Gulf countries were sullen and the slide continued.

Global financial and credit crisis isn't going to go away anytime soon and the contraction appears to be well under way in US and European economies, which is expected to have an impact in emerging economies, including the Middle East.

Panic selling

And in the prevailing declining market, now in its fifth month since the foreign investor started exiting in July, the anxiety of the retail investors, who dominate the market here, is overwhelming particularly with regard to possible repercussions of a severe slowdown in the real estate sector and the liquidity position of the banks far from being resolved.

The offloading of real estate, construction, finance and banking shares have continued in a market, which has been trading really low volumes.

Sales agents have said in recent days that there has been panic selling by some investors with price cuts of up to 40 per cent.

Also, Mohammad Ali Al Abbar, chairman of Emaar Properties, which closed yesterday at a new low of Dh4.15, said on Sunday that the government would "revisit their development pipeline to ensure that demand remains robust".

The sector has started seeing layoffs, including Damac Properties announcing yesterday that 200 of its jobs will be retrenched. Also, as some brokers have revealed that investors have low expectations on dividends this year.

Fear rules

"At a very rudimentary level, negative sentiments continue to persist because investors are focusing on the fear of a further slump in equity and oil prices, property developers struggling to secure financing for existing and future projects, possible corrections in the property market, and difficult financing conditions," Salwa Hammami, head of research at Arqaam Capital in Dubai.

And earnings of real estate sector and finance companies will slowdown in the fourth quarter, said Tariq Qaqish, fund manager, asset management, Al Mal Capital.

Fundamentals don't apply. "Investors are hesitant to play any rally internally or externally and this can be attributed to their short-investment horizon and losses they have incurred so far this year, so they end up engaging in momentum behaviour basing their decision on the recent plummet in stock prices than on actual fundamentals and consistent estimation of real values," said Hammami.

Some analysts believe there is an added effect, which needs to be considered also.

"Investors who have leveraged positions are most likely sitting on heavily loss makings positions, creating an overhang on the market," Fahd Iqbal, senior analyst and strategist at EFG-Hermes Holding.

"And the retail net selling behaviour could be reflective of the closure of at least some leveraged positions."

Hesitant companies

Companies haven't done their bit to help the market, feel some analysts, particularly those such as Emaar Properties who announced buyback of shares.

Emaar has dived more than 70 per cent this year and is below its book value of Dh6 and it bought 200,000 shares.

"They announced their buy backs but they don't do it. Is 200,000 enough? These companies have funds and if they believe in the value of their stocks, they should buy more," said an analyst.