UAE shares recoil in Merrill, Lehman aftermath

Dubai: Stocks in the region tumbled on Monday after Lehman Brothers filed for bankruptcy and oil prices dropped sharply, prompting investors to exit the markets. Stocks in Europe and Asia tumbled, reflecting the global panic.

Panic selling during early trade resulted in the Dubai Financial Market nosediving nine per cent to a low of 3,935 before recovering to end the day 1.71 per cent down at 4,044.27.

The Abu Dhabi Securities Index also fell sharply to a low of 3,713. It ended the day down 4.35 per cent to close at 3,754.49.

"Lehman Brothers did active business in the region and I would suspect most financial institutions here would have some exposure to them across various asset classes... the process of unravelling this exposure has only just begun and will continue for quite a while," said Abdul Qadir Hussain, CEO of Mashreq Capital.

"But my sense is that these exposures would be very manageable for most institutions in this region."

Trading was extremely volatile. However, many stocks recovered to erase the early losses. The real estate and banking and investment sectors suffered heavy losses in early trading, led by Emaar, Aldar Properties and Sorouh Real Estate.

Emaar touched a low of Dh6.27 but recovered to close at Dh7.21. Aldar fell 6.78 per cent to Dh 7.01 and Sorouh shed 6.77 per cent to close at Dh5.37. First Gulf Bank traded in a 20 per cent range during the session, which closed 2.87 per cent down to Dh16.90.

Emotional reaction

"The market is very emotional and investors are driven by sentiments more than fundamentals," said Khalid Masri, executive partner, Rasmala Invetments. "And in an already weak market with a specific breed of hedge funds continuously exiting, Lehman Brothers' news obviously further depressed the sentiments and that has been globally."

Foreign investors continued to be net sellers.

"The bearish trend in the past several weeks in UAE and other stock markets in the region was basically a result of the outflow of capital and liquidity demand from foreign investors," said P. Krishna Murthy, CEO of Dubai International Securities.

"Despite participation by the local investors, selling pressure by the foreign investors has made the market crash significantly.

"The global financial crisis, liquidity issues and other geopolitical concerns triggered a selloff in local equities by foreign investors as well as institutional investors from western countries."

But current P/E ratio and valuations look extremely compelling and some think the gloomy days are limited.

"Looking at current market valuations on the growth potential, we can say that this is a passing phase which may not last long," Krishna Murthy added.

"Therefore despite current turmoil in stock markets, we believe that the future would be driven by valuations on stronger fundamentals on local stocks."

Short-term rebound

More immediate, the panic selling in the past few days could lead to a short term rebound, according to an analyst.

"Investors are likely to take advantage of the current levels but we need to see the markets consolidating before we can expect to see any kind of sustainable change in market direction," said Anne Marie Browne, foreign institutional sales, Al Futtaim-HC Securities.

But there are sceptics of whether there will be a turnaround in the immediate term - for the next week or two.

"The mood is so glum and it's so grim that I don't have much hope. At best the only thing we can hope is that the market does not go down further," Masri said.

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