Arabtec freefall brings down traded stock value by 25% in Dubai

Investors rushed to sell off their Arabtec holdings as uncertainty clouded the Dubai builder. Pawan Singh / The National

Traded value on the Dubai Financial Market (DFM) dropped by Dh10 billion in June as investors, gripped by fear over the Arabtec drama, rushed to sell off shares.

The value of shares traded dropped 23.3 per cent to Dh35.62bn last month, compared with Dh46.5bn in May, according to data supplied by the Dubai bourse.

The industry described the drop in trading as a “June clean-up” of margin calls.

Fund managers and retail investors were left in the dark over the course of June after Arabtec’s chief executive Hasan Ismaik resigned, and hundreds of staff were cut, raising questions over the company’s future.

The Securities and Commodities Authority, the market regulator, clamped down on brokerages on what it considered excessive margin calls that triggered an equity rout that cut more than 10 per cent from Dubai's index.

The SCA last week had summoned Arabtec to provide clarifications to disclosures, and separately said “appropriate actions are being taken against any brokerage company which exceeded its approved lending limit in margin trading”.

Stockbrokers are already lowering their revenue forecasts for the second half of the year.

“I would expect to see, overall, a weaker second half this year,” said Mohammed Ali Yasin, the managing director at National Bank of Abu Dhabi’s brokerage arm. “I think brokerage companies have been hurt by the margin trading clean-up in the month of June because a lot of those clients where margin was executed lost a lot of their wealth and have been burned. Anyone working on budget and revenue would be looking at June, July and August to be slower months than what we saw in the first half of the year.”

Fresh money poured into the UAE bourses in the first half of the year, warranted by increased foreign investment interest amid a resurging equity market.

Brokerages, whose bread and butter are trading commissions, have benefited from four profitable quarters following years of restructuring and consolidations after the global financial crisis.

There are 48 brokerages in operation from a peak of 103 in 2010.

Foreign interest in local equities was supported by strong quarterly earnings from UAE corporates and the inclusion last month of shares into MSCI’s Emerging Markets Index.

Investors traded Dh342.2bn worth of shares listed on the Abu Dhabi Securities Exchange and DFM from January to the end of June, compared with Dh242bn for all of 2103.

“Stockbrokers are living on cloud nine when it comes to traded value,” Mr Yasin said. “Anyone who holds more than 1 per cent market share is comfortable. Markets have exceeded the total of last year and a little bit more.”

Fathi Ben Grira, the chief executive at the Abu Dhabi headquartered Mena Corp, was in agreement: “Honestly speaking, Dh35bn in traded value is not bad at all.”

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