Dubai: Lack of confidence among investors in the property stocks is driving traders out from the Dubai Financial Market as they seek greener pastures elsewhere.
The Dubai index has been falling ever since it hit a record high of more than 5.400 in 2014, and increasingly traders have turned indifferent towards the local stocks, shifting their attention to other regional or international stories in the region. Traded volume has also seen a declining trend, falling from a total of 115 billion in 2014, the highest since 2003, to 34 billion in 2018 as most of the traders resorted to selling than buying these stocks.
“We think this fall [in volumes] is mainly due to poor sentiment. Retail has lost a lot of money last year on speculative stocks and whenever that happens they don’t come back anytime soon. It is a long-term phenomenon in UAE markets that volumes dry up when markets experience a sharp decline. And they recover when stock prices go up,” Charles-Henry Monchau, Managing Director - CIO & Head of Investments at Al Mal Capital, a unit of Dubai Investments told Gulf News.
In total, the Dubai index witnessed a sharp decline from the level of more than 5,400 in 2014 to 2,500 levels now, registering a fall of more than 50 per cent.
The Tadawul index hit a high of 11,160 in September 2014 with a traded volume of $65 billion (Dh238.7 billion) and had been maintaining the same levels of activity through 2015 and 2016, but the decline came in 2017, when traded volume fell to 40 billion shares and went on to register activity in 37 billion shares in 2018.
On the wider horizon, rising interest rates have also played its part in denting liquidity in the stock markets even as the prospect of holding a share does not look promising, analysts say.
“Interest rate hikes have definitely been a factor in reducing liquidity however it wasn’t a direct correlation. Liquidity has been pressured by lack of communication, transparency, weak governance and an uncertain macroeconomic cycle. Interest rate hikes just added more pressure on equities to produce results when they could not,” Essam Kassabieh, Senior Financial Analyst – Research Department at Menacorp told Gulf News.
“Dubai market turnover is January is now merely 8 per cent of what it was in 2014. This is not sustainable and we do expect recovery in turnover in the indices in the coming months,” Nishit Lakhotia, Head of Research at SICO Bank, said.
Even the valuations, that are beaten down, look promising.
“On a valuation basis, there are many names which are indeed attractive at current levels, but most fund managers are already positioned in these names. If real estate market shows signs of stability, one should expect a sharp recovery in the overall index. Markets are forward looking and hence if fundamentally real estate stabilizes in late 2019 or 2020, stock prices will start showing signs immediately,” Lakhotia said.