Monday, November 17, 2008

Dubai Financial Market Tumbling - How low can it go?

I am not into shares but the current situation does make a lot of people trembling. Reports from local papers (Gulfnews and 7days) with perception that Dubai is going through a harder time than Abu Dhabi in general - the economy in terms of the real estate and Abu Dhabi companies seem to be more cash-rich than their Dubai counterparts.
There is still no report on suicides though but looking at the current rate, we may have some people in big debts.

Lack of transparency on issues affecting the sector is a point reiterated by analysts every day.
There is no clarity on what the extent of the problems are, how long it will last or what the solutions will be.

The Dubai Financial Market fell for the seventh straight session yesterday, tumbling almost six per cent to below 2,000 points for the first time in over four years.

Less than three weeks after breaking the psychological barrier of 3,000 points, losses for the real estate sector helped pull the General Index down 5.92 per cent to 1,981.44 points.

The combined value of all the companies listed on the Dubai Financial Market has fallen by more than Dh240 billion in the last five months as real estate stocks started getting badly battered with the exit of foreign investors since early July and, lately, with retail investors selling off on worries of the sector's growth coming to a halt.
There is no sign that the huge falls in real estate stocks, which also include the largest construction company in the country, are coming to an end.

Emaar dragged Dubai's stock market down by more than five per cent on Sunday, extending this year's loss to a staggering 67 per cent. Emaar, the largest Arab real estate company and a heavyweight on DFM index, dropped to its lowest since September 2004, tumbling 9.75 per cent to close at Dh2.87.

And given the bearish trend in the market, the stock is headed south in the near term, says a technical analyst. The chart points to a further slide in Emaar shares, which is expected to go down to Dh2.50 and then to Dh2.20 if the negative trend persists.

Yesterday, some of the other big losers included Deyaar Development, losing 8.97 per cent to Dh0.71, Arabtec Construction, sliding 9.88 per cent to Dh3.01, Union Properties, shedding 9.60 per cent to Dh1.13.

Shares of the country's two mortgage giants, very much dependent on the real estate sector, also fell, with Amlak Finance declining 9.82 per cent to close at Dh1.01 and Tamweel closing 9.65 per cent lower to Dh1.03. The government is reportedly in favour of a merger of the two that would aid in tiding over the difficult credit situation.
Investors are panicking and overreacting and some of them selling shares they bought for their grandkids.

The seven-day-slump of 32 per cent is the biggest ever for the Dubai bourse, according to data compiled by Bloomberg, prompting investors to wonder where the bottom of the market is.

Potentially we could see another 15 to 20 per cent fall but there will be not possible to drop much beyond that in terms of how low it can go.

What we should be more concerned about is not how low can the market go, but how long this downward trend is going to go on for. And that’s more worrying because the longer it goes on, the longer it’s going to take to get us into recovery mode.
As the global financial crisis caused foreign investors to take their money back home and local companies found it more difficult to get loans internationally, there has been less financing in the region for both individuals and businesses.
Fears that Dubai will not be able to meet its debts and that the emirate’s huge real estate projects lack funding have been intensified by falling oil prices and speculation that the property boom has ground to a halt.

The biggest fear is that the demand for real estate is going to slump. Investors advised not to touch banks and developers in this market.

A report from HSBC last week said that real estate prices in Dubai had fallen by four per cent, and by five per cent in Abu Dhabi - the first statistical evidence to indicate a slowdown in the property market.

According to an official, we’ll probably see an orderly decline in real estate markets until we see some [confidence and] financing come back into the market

At times like these we need announcements from the government to restore confidence.

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