Dubai's main stock index sank 4.0 per cent yesterday, one day after the Central Bank of the UAE warned that the country's property market could be close to "overheating".
The drop was the market's steepest in three weeks. With its latest close at 4,771.10 points, the Dubai Financial Market General Index is down 11.2 per cent from its recent peak of 5,374.11 on May 6.
The day's biggest decliner was Arabtec. Its shares dropped 9.6 per cent to Dh5.42 each, their lowest closing price since April 20.
Observers believe the recent sell-off might have gone too far.
“Some people are saying: ‘Yes, this is correct, the property sector is going too high and we are repeating the 2008 bubble’. That’s why some people are afraid to carry those shares and they start selling like crazy,” said Khaldoun Jaradat, the trading manager at Abu Dhabi-based Brokerage House Securities.
“But if our economy is not bad and the world [economy] shows no bad signals, for the property market to go down 3 or 5 per cent in a day, or 6 to 10 per cent in two days – we didn’t even do that years back.”
Saleem Khokhar, the head of equities at National Bank of Abu Dhabi’s asset management group, said the recent declines are a buying opportunity for investors.
He also said that steps taken to curb property speculation are already paying off.
“We’re already seeing the effects of the Central Bank’s regulations on that sector. I’m less concerned about that side of the situation. I think what concerns me the most is how well the economy is performing in the UAE; and to me I’m not seeing any chinks in the armour there.”
Mr Khokhar said the view over the next 12 to 18 months was positive. “In the next two weeks or so, I’ve been saying for a while that volatility is going to be there. That’s going to give you an excellent entry point into some of the listed equities that are out there, to get them at better valuations.”
He said volatility is common in the Dubai market and he expected the current bout to last through Ramadan. “We will get through the volatility and then we will be back up beyond where we were at the highs, because the underlying economy’s fundamentals are really strong,” he said.
He said a drop of up to 15 per cent in the index would not be unusual, especially “given the extent of the gains that we’ve seen last year and the year to date”.
The DFM has a year-to-date gain of 41.5 per cent. In 2013 it rose 107.6 per cent.
The Abu Dhabi Securities Exchange General Index did not suffer as heavy a blow yesterday, falling 1 per cent to 4,948.10. Its year-to-date gain stands at 15.3 per cent.
In Dubai, Union Properties shares decreased by 4.7 per cent to Dh2.19 each, again with a high volume of 71.7 million. Emaar shares fell by a more modest 3.7 per cent to Dh9.58 each.
While the capital was cushioned from the shock waves, Aldar stock dipped by 4.2 per cent, taking its share price to Dh4.02 each. RAK Properties shares lost 6.1 per cent to close at Dh1.07 each.
Mr Jaradat said the drops fuelled by the Central Bank announcement showed that many investors did not understand the companies they bought stock in.
He said those who sold en masse based on speculation, rather than on fundamentals, did not have faith in the stocks themselves.
“They buy to make some money. They don’t know what’s beyond that share, they don’t know what that company is. They buy that share and that is the ultimate. So when they start seeing that the shares are going down, they sell them,” he said.
Mr Jaradat said Arabtec’s share price fall of almost 10 per cent yesterday, on top of yesterday’s almost 7 per cent, was “too much” for the slightly volatile market. He attributed the quick loss to the company’s rapid rise, as opposed to the more conservative price movements shown by other companies, such as Emaar.
“When you see you are about to lose your profit, of course you will sell and khalas [it’s finished], that’s it … Most people are making money off Arabtec, though, they aren’t selling.”
halbustani@thenational.ae
Follow us on Twitter @Ind_Insights