Dubai: Uncertainty surrounding UAE bank exposures to the troubled Saad and Algosaibi groups of Saudi Arabia and falling oil prices led the Dubai Financial Market (DFM) general index to retreat 3.42 per cent on Wednesday, dipping below the psychological 1,700 mark.
The DFM closed the day on 1,699.43, with just one stock recording gains.
"Global markets remain jittery ahead of results where expectations of outperformance no longer cut it and investors no want tangible evidence of solid numbers before taking stocks higher again. The recent rally was fuelled by volume, the next one will have to be backstopped by solid data and earnings," said Matthew Wakeman, at EFG Hermes in Dubai.
Emaar Properties dropped to Dh2.40 after recording highs of over Dh4 just a few weeks ago. Arabtec dropped nearly five per cent off its share value, closing on Dh2.54 while Deyaar fell to Dh0.71.
The impact of selling activity in the real estate stocks has once again brought into sharp focus the heavy leaning of the equity market towards the troubled sector.
Similarly, financials, especially banks, are equally feeling the consequences of investor jitters. Dubai Financial Market fell 7.36 per cent, to close on Dh1.53, while Dubai Islamic Bank and Emirates NBD also saw selling activity.
On Tuesday, ratings agency Standard and Poors downgraded four Dubai banks, including Emirates Bank, National Bank of Dubai (NBD), mashreq and Dubai Islamic Bank.
"The economic slowdown, stock market decline, and dropping real estate prices are raising significant hurdles for these Dubai-based banks," a Standard and Poor's statement said.
A rally from March onwards was an indication of returning investor interest on the back of positive signs in the global economy, rising oil prices and attractively low valuations.
However, UAE markets recorded a loss of 1.4 per cent in June, bringing gains for the first half of 2009 to 16.7 per cent, according to a report by Rasmala investment bank.
"We believe that investors' concern about Emaar's merger plans and exposure of UAE banks to the troubled Saudi groups will continue to affect sentiment negatively for the coming month. We do not think there is potential for positive second quarter earnings and therefore remain sceptical about the UAE market in the short term," said Mohammad Al Nabarawy, head of research at Rasmala Investments, who wrote the latest monthly market report.