Dubai: UAE stocks shed a combined 16 per cent on Sunday and Monday as investors took flight over prospects of a new oil price war between Saudi Arabia and Russia. And there was the continued scare from what the coronavirus will do to growth.
On Thursday, within minutes of the opening, the DFM slipped more than 8 per cent, taking down 24 stocks. Clearly, investors were not too bullish about US President Donad's Trump's plans to combat the virus outbreak, which was the sentiment shared by other Asian markets.
But for value chasing investors, these drop may be a good time to load up on cheap stocks. In other words, buy the dip.
“At the moment, UAE markets are quite correlated with US equity markets - everything is run by sentiment,” said Shiv Prakash, Senior Research Analyst at First Abu Dhabi Bank Securities. “The fundamentals are still the same, but people are hesitant to buy.”
But “a closing price for the Dubai index at over 2,260 in the near term will confirm that there is a reversal in selling activity - and that will attract further buying.”
The Dubai index closed at 2,207.9 on Wednesday.
Prakash’s advice for investors was to remain stock-specific, and look at companies with strong fundamentals. Especially those stocks that are now trading at around 50 per cent lower than they were a few months ago. Emaar Properties, for example, is now at Dh2.86, nearly half since August when it hit a high of Dh5.53.
And while the broader economy is still challenging, with growth forecasts trimmed due to coronavirus concerns and lower oil prices, analysts say that in the UAE, there are still buying opportunities on some of the powerhouses.
“It’s impossible to time the market,” said Charles-Henry Monchau, Head of Investment Management at Al Mal Capital. “Bottoming out is a process. The downside is usually very brutal, and the market needs to test new lows before recovery. This could be the start of it.”
Patience can pay off
For long-term investors, Monchau said this is an opportunity to buy, saying Emaar and Emirates NBD are now relatively cheap. Share prices of Emirates NBD, one of the UAE’s largest banks, have fallen 30 per cent just in the last two months.
“The things to watch out for now are the COVID-19, which is threatening the tourism and trade industries, and the oil price shock,” said Monchau. “In the GCC, a lot of business comes from government spending; so lower oil prices could reduce spending, which would threaten the whole economy.”
Awaiting oil price stability
Once investors start getting clarity on the direction of oil prices and how to contain the coronavirus, markets can start to recover. Over the last weekend, oil prices crashed by over 30 per cent - the most since 1991 - after Saudi Arabia announced a large cut in its prices while Russia refused to lower supply. This only exacerbated what was already a volatile few weeks for markets due to growing concerns about the impact of the coronavirus.
The UAE has already cancelled various events and conferences, suspended school terms, and asked some employees to work from home in an attempt to limit the spread of the virus. Globally, the number of cases has now crossed 120,000. The World Health Organisation has declared a global pandemic.
Amidst all this external gloom, UAE stock valuations can seem enticing for a re-entry. But investors, as those elsewhere, will need to put on their long-term vision to make use of it.
As Prakash says it, “The scenario is still bearish.”