Brokers will continue to look to the western economies for clues on global market performance and its possible impact on the region this week. But a shortened trading week in the US and the last week of Ramadan may lead to low levels of activity.
In the US, all of the three major stock exchanges gained more than 1 per cent on Friday on better sentiment, encouraged by the US government's non-farm payrolls report showing stronger-than-expected data, suggesting the US economy might not be headed back into recession. Saad al Chalabi, an institutional trader at AlRamz Securities in Abu Dhabi, predicted on Thursday that if the Dow Jones Industrial Average stayed in the green that day and on Friday, "we'll have that energy to get through. We need that catalyst on the low volumes.
Everyone would be watching the unemployment numbers over the weekend, he said. For the rest of the week, trading is expected to be light, both in the US, with markets closed for tomorrow's Labour Day holiday, and in regional markets as activity slows before the Eid al Fitr holiday. Liquidity has been shrinking in the local markets, partly because of the summer slowdown but also because of Ramadan.
"UAE stock liquidity is at anaemic levels, with little sign of improvement for the remainder of the quarter," said Chet Riley, a property analyst at Nomura Securities in Dubai. "We do expect additional flows in the fourth quarter post-summer and post-Ramadan, but with low levels of investor appetite, capital remains on the sidelines." Still, some brokers are holding out hope for a rally just before the end of Ramadan."We're seeing some of that speculation coming in right now," Mr al Chalabi said.
Brokerages in the UAE will have been relieved to see the Dow close at 10,447.93 points on Friday. "If the [Dow] isn't above 10,000, forget about it. If it can't sustain itself above that later we're not in a good situation," Mr al Chalabi said last week. "At the beginning of the rally, you need that catalyst, the traders will need a catalyst." Last year, a rally began at the end of Ramadan and ended when Dubai World said in Novemberit was seeking to delay its debt payments.
In Abu Dhabi, Aldar Properties is expected to surge higher on market talk suggesting the emirate's government might help the company with its funding gap. Mr Riley upgraded Aldar to "buy" from "neutral" on Friday with a target price of Dh3.24. Aldar was trading at Dh2.29 on Thursday. Traders have discounted the property developer's stock, assuming that its Dh7.5 billion deficit next year cannot be resolved unless by a significant dilution of shares. One analyst thinks that a credible funding plan will be in place because the Abu Dhabi Government is a significant stakeholder economically and politically and will lend on commercial terms.
It is not just equity that has been affected by improving sentiment in the property company. Aldar bonds have rallied in the past week. "They think [Aldar debt] will become a sovereign debt, and that's all that's holding up the debt. It's all chatter at this stage but this story has gone out in the market," said an analyst who spoke on condition of anonymity. "The level of uncertainty is all on the upside."