By Mohamad Al Kady

Emaar and Arabtec stocks, both of which ended in the positive areas yesterday, are expected to lead the trend in the Dubai Financial Market (DFM) in the coming two sessions, according to market analysts.

Downtown Burj Khalifa
Downtown Burj Khalifa

Both stocks reversed their direction and went up yesterday, pushing the DFM index up throughout the session. Arabtec was the leading active stock and went up by 4.29 per cent to close at Dh2.43. The stock witnessed a strong rally during the first half of the session and traded at Dh2.51 before facing selling pressures at the end of the session, which eroded most of its gains.

The same scenario was seen in Emaar, as the stock rallied to Dh3.52 during intraday trading and lost most of its gains by the end of the session to close at Dh3.43, adding 1.18 per cent.There was a deep concentration of trading on Arabtec and Emaar, which together dominated almost 60 per cent of the total turnover, a sign of weakness in the DFM, according to analysts.

“There is a concentration on Emaar and Arabtec because of recent events which touched both companies. The opening of Burj Khalifa and the announcement of Aabar’s acquisition of a 70 per cent stake in Arabtec played the major role in movements in both stocks during the past few weeks,” said Mohamed Ali Yassin, CEO of Shuaa Securities.

“However, this concentration reflects a weakness in DFM because buying interest should happen in a wider spectrum of stocks to give bullishness in the market. Even for Emaar to lead a rally in the market it needs good movements in other leading stocks and we do not see this trend so far,” he added.

As expected, DFM ended its six-day losing streak and bounced up yesterday, after the market was oversold. However, the bounce did not give signals that the market would change its downside trend in the near term as analysts stressed that weaknesses remained.

The major weakness in the market is the low turnover, with 179 million shares worth Dh370.2 million changing hands during the session. Despite the surge in turnover compared to Sunday’s session, it remained far below the 14-day daily average of Dh450m.

“The bounce in the market was technical after the DFM index approached very important support levels around 1600 points. But we still need a rebound at higher volumes. Short-term players are in control of the DFM and we do not see new liquidity coming in. This situation is creating more risks because if the market rebounded sharply at low turnover, it may attract more sellers rather than buyers,” Yassin explained.

“The market is still weak and the current trade values show that the bounce will be short-lived,” said Amjad Bakir, VIP Portfolio Trader at Direct Broker for Financial Services. “The general trend in the market remains on the downside. Turnover should jump to Dh450m to give strength in the market and should reach around Dh600-700m to help the market reverse its direction. The current values are very weak and the market is expected to return to the downside in the next two sessions.”

Other active stocks, including DFM, DSI and Air Arabia, also advanced during the session in a narrow range. Speculators and daily traders remained in control and this was clear during the last few minutes of trading – selling pressures intensified on active stocks and dragged them from their intraday highs to close with marginal gains.

“Emaar is facing resistance at Dh3.52 and it should break this level today to give bullishness in the stock and test the next target of Dh3.60. If the stock turns bearish it will face supports around Dh3.36. Arabtec can also advance to its next target of Dh2.61,” Bakir said.

Yassin predicted that investors might start shifting their portfolios in the next few sessions, targeting stocks with high expectations of good dividends, especially in the telecom and utilities sectors.

“We expect a shift to selected stocks with potential dividends in the near term. This trend may continue until listed companies announce their 2009 results. However, this trend will be seasonal and we will see a return to leading active stocks after the distribution of dividends,” he said.

Provisioning may play spoilsport for banks

Banking stocks are expected to face more pressures due to worries among investors about their Q4 results, especially provisioning. Banks ended yesterday’s session with mixed results, as heavyweight Emirates NBD went down marginally to close at Dh2.66. DIB bounced up to close at Dh2.20 at low turnover.

“There are still worries among investors about provisioning. This has led to a drop in expected Q4 2009 earnings. There are still positive expectations that banks may report Q4 2009 profits higher by 10-20 per cent compared with results of Q4 2008,” Yassin explained.

He said these estimations might continue to create pressures on banking stocks until they announce their results. “Clarity of results in banking and real estate sectors will be critical for investor sentiment and the trend in DFM.”