Dubai’s new bull run is being led by retail investors on the hunt for quick profits, only weeks after shares plummeted into bear market territory, marking a period of volatility beyond analyst expectations.
The Dubai Financial Market General Index has risen more than 20 per cent from its low on June 30.
“[It is] a natural bounce after a sharp correction, although I suppose it should be noted that in a market dominated by retail investors, sharper moves are more evident,” said Julian Bruce, the head of institutional trading at EFG-Hermes in Dubai.
The price swings have ignited concern among institutional investors over the shorter duration that stocks are being held for. Fund managers have sought to reduce volatility in their portfolios and are seeking other markets to invest in.
“We are moving from more volatile to less volatile securities and reducing exposure to the UAE and increasing our exposure to Saudi Arabia,” said Muhammad Shabbir, the head of equity funds and portfolios at the Dubai-based Rasmala Investment Bank.
“We reduced our weights on some of the construction names and allocations to the UAE as a whole, as we do in times of wide fluctuations. Fundamentally nothing has changed, the market is still attractive but valuations are a bit stretched.”
Higher trading activity boosted second quarter profits for Dubai’s exchange. The Dubai Financial Market reported yesterday a more than three-fold increase in quarterly net income to Dh252.5 million, compared with Dh69.5 million in the year earlier period.
“DFM has sustained its momentum and remarkable performance during the first six months of the year 2014, which has been positively reflected on the company results,” said Essa Kazim, the chairman of the bourse.
Last year brought a resurgence ahead of the upgrade of UAE bourses by MSCI to the emerging markets.
This year’s stellar improvement came as UAE stocks were incorporated into MSCI’s Emerging Markets Index and amid the dramatic slide and subsequent recovery of Arabtec’s shares.
Trading values, whose commissions are the bread and butter for the DFM exchange, jumped 234 per cent to Dh126.9 billion in the second quarter, compared with Dh38 billion last year.
More than 25 per cent was shaved from the benchmark from May to June as Arabtec’s chief executive, Hasan Ismaik, resigned and hundreds of staff were made redundant, panicking investors and triggering a broader sell off.
“That’s the main theme right now – trading and volatility, rather than institutional investment,” said Marwan Shurrab, the head of trading at the asset manager Vision Investments & Holdings in Dubai. “In the last two days, Arabtec controlled over 50 per cent of the market turnover.”
This lead Mr Shurrab to believe that trading was mostly done by retail and speculative investors.
Arabtec’s saga dramatically affected sentiment over Dubai equities, prompting the market regulator to investigate brokerage houses over margin calls in a bid to assess the amount of financial leverage in the system. A raft of regulations have been introduced in recent weeks by the Securities and Commodities Authority, such as monitoring statements of chief executives and their subsequent impact on stock prices, in a bid to boost investor confidence.
Dubai’s index rose 0.9 per cent yesterday to close at 4,903.46 points.
Mr Shurrab said the focus of investors will be on second-quarter corporate earnings to confirm the sustainability of recent price increases rather than arbitrage and speculative opportunities.
Amer Khan, a senior executive officer at Shuaa Asset Management in Dubai, said: “I expected volatility [after the] MSCI upgrade but feel the index clearly overshot, considerably on the downside driven mainly by the news surrounding Arabtec. It’s encouraging to see investors price the very attractive fundamentals in the UAE back in as the dust on the Arabtec issue settles.”
Dubai’s economy, witnessing a construction resurgence and retail boom, is expected to grow 5 per cent this year and next, according to Bank of America-Merrill Lynch.
halsayegh@thenational.ae
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