Local bad news compounds global stock downturn for DFM
Posted on 21 June 2009 with no comments from readers
The Dubai Financial Market looks set to slide lower this week as local news has turned negative at a time when global financial markets are also looking under pressure with a long bear market rally coming to an end.
Last week the widely followed DFM dropped four per cent to close at 2,014. The question now is how much of a more than 25 per cent gain since the lows of March is likely to be given back.
Summer sales
The end of June is traditionally a time of stock sales with wealthy nationals and expatriate investors heading off to cooler climates for the hot months of July and August. Even in the boom times very little business got done in Dubai during this period.
To be sure the emergence of negative news might also stop. Confusion over the status of a deal between Emaar Properties and Kingdom Holdings over an eye-catching contract for the world’s tallest building in Jeddah caused this bellwether stock to fall last week.
Also the stand-off between the Dubai Banking Group and Shuaa over the conversion of bonds did nothing to boost investor confidence. And finally came news that Mashreqbank has some exposure to the financially-troubled Saad Group and Al Gosaibi.
Elsewhere even the protests in Iran do not bode well for stability in a key UAE trading partner, and this is hardly good news.
However, the main hurdles ahead for the DFM are probably going to be completely out of its control, and again centre on global financial markets.
Over the past week the 13-week bear market rally on Wall Street has apparently reversed direction, partly because it had moved too far, too fast, and perhaps because much of the optimism about green shoots of economic recovery is seriously misplaced.
US stock outlook
As the indices move lower over the usually quieter summer months there is bound to be a reappraisal of the outlook for US stocks and it is not likely to be very positive. To some extent then all the good news is in the price and this is a typical selling signal.
Some analysts see this as a W-shaped recession for investors and this suggests that the next phase is a sharp correction from the recent rally. More pessimistic commentators are talking about a VL-shaped recession with a sharp correction followed by a long period on the bottom.
That could also be the fate of the DFM, and was the pattern of the 1998-9 crash which did not really come far off the bottom until 2004.
