Property stock selloffs hit DFM

Dubai experiences sharpest monthly drop since November 2008

Issac John

UAE markets closed the month with sharp declines on Monday as Dubai’s benchmark index recorded the steepest monthly fall in six years amid a heavy selloff in property stocks.

The DFM General Index shed 4.4 per cent to close at 3,942.82 points, accumulating its monthly loss to 22 per cent, the sharpest since November 2008. Emaar Properties, the developer with the biggest weighting on the measure, decreased 3.7 per cent.

The Abu Dhabi Securities Exchange General Index dropped 2.08 per cent to end at 4,551.02.

Dubai’s tumble was driven by the largest-listed contractor Arabtec, which lost 10 per cent, the most allowed in a day, to close at Dh2.61. Other heavy losers on the Dubai bourse included Emaar, Union Properties, Drake & Scull International, Dubai Islamic Bank and Dubai Investment Company. Emaar shed 3.67 per cent to close at Dh8.41, Union Properties plunged 9.55 per cent to Dh1.61, Drake and Scull retreated by 10 per cent to Dh1.35 Dubai Investment went down by 8.16 per cent to hit Dh2.70, Deyaar Development retreated 8.7 per cent to 90.5 fils and Dubai Islamic Bank dipped by 2.42 per cent to Dh6.45.

Analysts are of the view that the sustained retreats at the two bourses were sparked by property and realty stocks in the wake of a warning by the UAE Central Bank on the prospects of an overheated market due to the imbalance in rents and property value.

“This has resulted in some key investors retreating from the market. Another key factor was the setback suffered by the construction giant Arabtec amid the dramatic exit of its chief executive and rumours about the size of the holding in the company by Aabar Investments,” a property consultant said.

The market euphoria about the MSCI upgrade seems to have waned, especially after the warning by the central bank and the International Monetary Fund of an overheating of the property market which had been witnessing an irrational exuberance even before the announcement of Dubai winning the bid for Expo 2020,” a property consultant said.

A monthly Reuters survey of 15 leading investment managers in the Middle East indicated that after buying in early 2014, many funds started to cut their Dubai holdings one or two months before the MSCI upgrade occurred at end-May.

“Property and construction stocks are at the forefront of the market, and in a down draft they take a hit. It looks like the correction is not fully done and we are heading lower again. The next support level is 3,800,” Hisham Khairy, the Dubai-based head of institutional trade at Mena Corp Financial Services, was quoted as saying by Bloomberg.

None of the regularly-traded stocks in Dubai’s 30-member benchmark gauge were trading above their 50-day moving average price [on Sunday] for the first time since June 2012, according to data compiled by Bloomberg. The market’s relative-strength index slumped to 30.9 on Monday from 53.7 at the end of last month. A level below 30 typically indicates to analysts the stocks are oversold and poised for a rebound.

Dubai’s main index has now entered a bear market eight times since 2008, when the global financial crisis tightened lending. The month’s loss cut the benchmark index’s estimated price-earnings ratio to 13.4, from a peak of more than 19 in May. That compares with a ratio of 11 for the MSCI Emerging Markets Index, according to data compiled by Bloomberg.

While negative sentiment is driving share price movements in Dubai, a stock market crash is an unlikely scenario, said Ali Khalpey, head of equities at Exotix Partners in London.

“There are some noticeable structural differences between where Dubai is today and where it was six years ago,” he said in a June 26 interview. The emirate’s gauge plunged 72 per cent in 2008, the biggest annual drop on record.

Across the region, markets recorded slump, a normal trend during the holy month of Ramadan. Qatar’s shares have slipped 16 per cent in June, the biggest monthly decline since January 2009.

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