Foreigners were net purchasers of shares on the Dubai Financial Market last week for the first time in nearly five months, suggesting they may be returning after a long stretch when they pulled money out of the market. Foreign investors bought Dh49 million (US$13.3m) more shares than they sold on the exchange last week.
Mohammed Ali Yasin, managing director of broker Shuaa Securities, said it was "a positive sign", but more evidence would be needed before he was convinced that the long-running flight of foreign investors from the market was abating. He said the surge could reflect some tactical manoeuvring by small foreign investors rather than a more committed move by large-scale buyers dipping their toes in. "I am not sure whether they are here for the short term or the long term," Mr Yasin said.
The Dubai exchange's general index fell by one-quarter last week, its worst weekly performance of the year, closing at 2,106.14. Shares of property companies led the declines, continuing the reversal of trading activity in the first half of the year when foreign investors were relentless net buyers. Back then, many of them saw Gulf equities as a shelter from global economic problems and were betting on a currency revaluation earlier in the year.
Those hopes have unravelled in recent months, helping send the region's markets into their worst-ever tailspin. Some companies, such as Sorouh, the Abu Dhabi property developer, even scaled back the amount of their company that foreign investors can own, hoping that would leave their shares less vulnerable to inflows and outflows of foreign cash. Others, however, argue that foreign investors are important to rebuilding the foundations of a market recovery and ultimately transforming GCC exchanges such as Dubai into mature markets capable of mobilising long-term investing capital.
The confidence of foreign investors remains low, given the recent rout, said Udo Schaeberle, the director of clients at the Abu Dhabi branch of BHF Bank. He said events over the past week had damaged foreign investor confidence in the region. They were discouraged by Sorouh's decision to cut its foreign ownership limit to 15 per cent from 20 per cent and by the court-ordered closure of the Kuwait stock exchange until tomorrow, along with the huge equity price falls, he said.
GCC exchanges still appear troubled. Saudi Arabia's Tadawul, the only exchange in the region open yesterday, fell 7.4 per cent to a four-and-a-half-year low. It closed at 5,079.54, a drop of more than 400 points, leaving it at its lowest level since March 2004. The market has lost 54.55 per cent of its value this year. Also yesterday, an Abu Dhabi-based broker called for the regulator, the Emirates Securities and Commodities Authority, and the UAE bourses, to hold an emergency meeting to discuss the recent sharp equity falls. The state news agency WAM reported that Al Burooj Securities, with the backing of other brokers, called for Central Bank officials to attend a meeting, along with other market players.
Hussam al Amri, Al Burooj's chief executive, stressed the pressing importance of holding such a meeting, whose banner would be "Supporting and Revitalising the Financial Markets in the Country". He invited the collaboration of Abu Dhabi and Dubai stock markets, all brokerages, investment funds and prominent businessmen, and said Esca should oversee the initiative, according to WAM. Overall, foreigners bought Dh1.053 billion worth of stock on the DFM last week. They sold Dh1.005bn. The last time foreigners were net buyers was in the week of June 22-26, when they bought Dh67m worth of shares more than they sold. That week, they bought Dh2.069bn worth of shares and sold Dh2.002bn. Since June, foreign investors have been net sellers of Dh7.14bn in shares.
Domestic investors have often been on the other side of those trades. Last week, Emiratis were net sellers of stock. They bought Dh1.658bn and sold Dh1.707bn. Some attribute the selling to margin calls, which created a surge that pushed the market capitalisation of some companies below book value - or the amount its accounting books say it is worth. "What we are seeing now really looks like a sell-off because investors need cash," said Mr Schaeberle. "I think we are coming closer to the bottom now as so many shares are trading below book value."
In addition, institutions were net sellers of shares last week, while individuals were net buyers. Institutions overall were net sellers of Dh9.73m, after buying Dh2.7bn and selling Dh2.71bn. Individuals were net buyers of Dh9.73m, after buying D11.54m and selling Dh1.82m. @Email:afoxwell@thenational.ae