Dubai Financial Market set for worst quarter since 2012

Arabtec and Drake & Scull lead declines on Sunday as DFM, fuelled by uncertainty over Arabtec projects, tumbles.

Arabtec shares have lost 50 per cent since June 2. Pawan Singh / The National

Dubai shares tumbled yesterday as the contracting firms Arabtec and Drake & Scull International extended losses, setting up the worst quarter for the market since 2012.

The declines were fuelled by uncertainty over the status of previously announced Arabtec projects since the chief executive Hassan Ismaik stepped down earlier this month.

“We’re going to require more clarifications from the main shareholders of Arabtec now that Aabar is on the front seat and we need to know what is the strategy going forward,” said Rami Sidani, who oversees the US$343 million Schroders International Selection Fund in Dubai. “We need to know how much damage has been made from the previous management.

Before Mr Ismaik’s resignation, rumours had surfaced among traders that Arabtec intended to buy a stake in Drake & Scull.

“I think the recent panic has really caused lots of damage to investors’ appetite and this could take time to heal,” said Tariq Qaqish, the head of asset management at Al Mal Capital, a Dubai investment bank.

“Investors were speculating that Arabtec might buy DSI, hence why it was holding even at the start of the market declines. But now with Ismaik gone, people are saying this arrangement will not work.”

Shares of Arabtec and DSI on Sunday lost 6.4 and 6.2 per cent respectively.

Arabtec’s shares have lost more than 50 per cent of their value since June 2 amid the resignation of Mr Ismaik and the hundreds of staff layoffs that followed.

The sell-off triggered margin calls for investors who borrowed to increase their exposure to Arabtec, which rose more than 1,300 per cent from 2011 to a peak of Dh7.40 last month before dropping to Dh2.90.

“There was a lot of margin lending which has weighed further on the market due to retail lending. So margin calls and retail panicking have led to this downtrend recently,” Mr Sidani said.

The development forced members of the UAE Federal National Council last week to speak out and pressure the UAE stock market regulator into investigating the dramatic market decline.

The Dubai Financial Market General Index on Sunday fell 2.3 per cent to close at 4,123.61 points. Dubai equities moved into bear market territory on June 23. In a report to clients, Bank of America Merrill Lynch said it was “underweight” on UAE equities “on valuation and weakening flow after the index trade”.

Investors “don’t know where or what to look at in the market, at the same time they don’t want to be exposed to very volatile names,” said Sebastien Henin, the head of asset management at The National Investor, an Abu Dhabi investment bank.

Traded value was slashed from a daily average of Dh1.8 billion over the past month to Dh400m yesterday. It was the first day of Ramadan, the season during which Muslims fast for a month, and traditionally a period of low market activity.

“There’s definitely a lack of interest from the market, it’s summertime and Ramadan. We could see it in terms of liquidity and volume,” Mr Henin said.

After the inclusion of local shares into MSCI’s Emerging Markets Index at the start of this month, “investors were looking for a new catalyst from the market but there was nothing new, so it was not a surprise to see high beta names take a hit in the current environment”, he added.

Investors typically position their portfolios ahead of second quarter results and a so-called “Ramadan rally”, which traditionally occurs towards the end of the holy month every year.

“The market will not rebound steadily unless the Arabtec saga is behind us and the chapter is closed completely,” Mr Sidani said.

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