Dubai: The momentum-driven stocks like Gulf Finance House, Shuaa Capital, Gulf Navigation, HITS Telecom Eshraq Properties, which have been witnessing sharp upmoves not seen since the past two years, may see a brief slowdown as traders shift attention to get dividend yields.
Dubai index has moved in a broad range of 3,200-3,600 since April, but stocks like Gulf Finance House, Shuaa Capital Eshraq Properties, and Gulf Navigation have more than doubled in that time frame, not reflecting on the broader gauge.
Gulf Finance House has been contributing to more than a third of the daily volumes, while volume in blue chips like Dubai Islamic Bank has fallen by 30 per cent.
“This trend (of trade in small stocks) would continue at least till the end of the month, and then once we start the dividend stocks we may get some kind of slowdown. I am not sure if that would be a for long term, we will have to wait and see,” said Mohammed Ali Yasin, of National Bank of Abu Dhabi Securities (NBADS).
But market experts are worried because the share price does not justify fundamentals. For example, Gulf Finance House is trading at 370 times PE, compared to the Dubai market, which is trading at 11 times, and blue chips at 7-8 times.
“This is a liquidity-driven rally. This liquidity is driven by certain investors, and this is taking these shares to levels that fundamentals don’t justify. Some people are expecting that these companies would be doing certain things in the future. I believe that future could be better for them with the new management, and the market is pricing 2-3 years profit in the current prices,” Yasin said.
Tariq Qaqish of Al Mal Capital also concurred.
“As for speculative stocks that rallied recently valuations are becoming unreasonable, and this steam won’t continue for long and there would be a significant correction,” said Tariq Qaqish, head of asset management at Al Mal Capital.
And these stocks are not seeing participation from long term investors. “The long term clients who are invested in the dividend stocks are on the sidelines, so they are not seeing the benefit,” Yasin said.
“The people who are net buyers daily is not more than 5 per cent of the total. This shows that there is a circulation of liquidity going into these shares, rather than long term investors buying these stocks,” he added.
Yasin has a word of caution as any stock below Dh1 could the next probable candidate.
“Just be careful of the risks that you take,” Yasin added.
