News Column

Property-related shares drag Dubai index down 6.7%

June 24, 2014

Naushad K Cherrayil Staff Reporter


Dubai's benchmark index plunged around 6.7 per cent on Tuesday, the most since August 2013, as fall in Arabtec shares triggered a chain of margin calls that forced a broad sell-off.

Arabtec, which has the fifth-highest weighting in the index, closed down 9.8 per cent on Tuesday at Dh3.12, its lowest since January 30, after the company confirmed it is cutting limited staff following the resignation of its chief executive Hassan Ismaik last week.

The property developer has plunged 52 per cent this month and $6 billion has been wiped out of Arabtec shares this month alone.

The DFM index fell 6.68 per cent to 4,009.01 points. The index has dived around 8.7 per cent during intra trade and recovered slightly towards the close, hitting a high of 4,320.39 and a low of 3,923.17 points.

Property-related shares took a beating across both the bourses and forced Abu Dhabi's index ADX to close 3.32 per cent down at 4,553.31 points, its biggest drop since January 2011.

Of the 35 companies traded in Abu Dhabi, three rose, 27 declined and five closed unchanged.

About 220.59 million shares worth Dh513.23 million were traded. Aldar was the active value leader while Eshraq was the active volume leader.

In Dubai, "Arabtec is mostly dragging other shares down. What we are seeing now is a correction after a strong appreciation. It is long overdue as the shares have reached exaggerated levels," Rami Sidani, head of investments at Schroders Mena, told Gulf News.

He said that Arabtec has been the darling of the retail investors at the beginning of the year, fuelled by inaccurate statements by the former CEO and accordingly, retail investors have been involved heavily in the stock. In the last three months, Arabtec has roughly accounted for "half of the average" daily volume.

"What we are seeing today is a reversal of the trend and a panic selling, in addition to triggering margin calls," he said.

Four shares hit the 10 per cent daily cut-off limits Aman, Deyaar and Dubai Investment, National Cement and Gulf General Investments.

The Arabtec saga has hurt confidence throughout the market and the share has tumbled its daily 10 per cent ceiling for a third session in a row.

The index entered a bear market from Sunday after falling 20 per cent from a May 6 peak. Even after the bloodbath, the DFM is still the best performer globally after Argentina's Merval index at 18.97 per cent.

"The market sentiment is deteriorating due to couple of reasons, mainly Arabtec. The current index has broken the major support level (4,500) to 4,000 points which has escalated the negative sentiment causing a broad-based sell off for the past two days," Marwan Shuraab, fund manager and head of trading at Vision Investments.

When asked whether the panic selling will continue, he said it depends on the market conditions. It is difficult for anyone to predict. The next support level should be at 3,800 points.

"Right now, negative sentiment is controlling the market. If we can see a consolidation at the support level, then we could see a recovery," Shuraab said.

He said there are concerns from traders on further downsize of the market.

"We are seeing escalated pressure due to Arabtec shares weakness for the past couple of weeks," he said.

The focus is now to "book profits on blue chips that led the rally" in the beginning of the year.

Among the lonely gainer in Dubai, Al Madina rose 7.47 per cent to Dh0.590.

Of the 32 companies traded, one rose, 30 declined and one closed unchanged.

About 706.12 million shares worth Dh1.84 billion were traded.

Emaar was the active value leader while Arabtec was the active volume leader.

Sidani said that it is hard to speculate when it [Dubai index] will be reversed. "We are definitely reaching very attractive territories. Valuations are back to attractive levels, especially in the blue chips."

"We believe that smart money and international investors, who missed the rally and have stayed on the sidelines, will now jump into the market to take advantage of the entry points," Sidani said.

But Shuraab said that corrections are healthy, but it should not be as steep as we are seeing now as this causes a negative reaction to be broader and let investors lose faith in the market.

"It is not a right a time to invest. Investors will pump money only when there is stability. With such negative performance of 10 per cent on a daily basis, it does not justify an appetite for investment. The high volatility and fluctuations, especially on the downside, discourages investors from participating due to risks of further downside," Shuraab said.

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Source: Gulf News (United Arab Emirates)

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