Margin trading makes a comeback on Dubai bourse

EFG-Hermes says pick up in margin trading is usually a good sign for Dubai’s equities benchmark index

The last episode of rising margin activity was between November 2016 and February 2017, with the benchmark index rising about 12 per cent during the period. Ali Haider / EPA

Margin trading is making a comeback on Dubai’s stock exchange, picking up from ­all-time lows, in a sign of ­reviving investor confidence in the emirate’s listed companies.

Such an uptick, if ­it can be ­sustained, could help to push the market's benchmark
index higher.

Gross buying of shares on ­margin – where investors borrow money from brokers to buy stocks – last week rose 145 per cent week-on-week to US$224 million on the Dubai Financial Market (DFM), according to investment bank EFG-Hermes.

This marked the highest weekly level of gross margin buying since March 2017, while still well below the highest weekly total of $593m.

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Margin activity was boosted by trading in retail-friendly stocks Drake & Scull International, Gulf Finance House and Dubai property developer Union Properties, EFG said in a research note yesterday.

Such trades boosted Dubai’s headline index 1.93 per cent during the week, its best weekly showing since mid-July.

The last episode of rising margin activity was between November 2016 and February 2017, with the benchmark index rising about 12 per cent during the period.

The forward momentum at the time was led by ­small­­-­
cap­-retail-driven names, but it also had a knock-on effect on other blue-chip names, according to EFG.

Trading volumes hit a four-month high yesterday on the DFM, even as the index closed flat at 3,657.48, thanks to heavy trading in Islamic Arab Insurance Company, Deyaar ­Development and Union ­Properties.

Total trading value rose to Dh644.4m compared with the 50-day average trading ­value of Dh288.1m.

“We’re approaching the end of the year so we’re seeing ­various portfolios and funds building stakes in various shares, bringing buy power back into the market,” said Khaldoun Jara­dat, trading manager for Ansari Financial Services.

“This in turn has brought retail investors back into the market [as well].”

The benchmark has risen 3.59 per cent since the beginning of this year, led by Damac Properties, which has advanced 55 per cent since January.
EFG said that it would play the potential rally in Dubai stocks via Dubai Investments Company (DIC), the sixth most traded stock on margin last week.

Mohamad Al Hajj, vice president and head of Mena strategy at EFG-Hermes, said the company’s stock is expected to be included in ­MSCI’s widely tracked Emerging Market (EM) index from next month.

“We expect about $60m passive inflows – approximately 17 times the three-month average daily trading value – into DIC from MSCI EM trackers,” Mr Al Hajj said.

DIC's foreign ownership limit (FOL) is currently capped at 35 per cent, despite the fact that the UAE's companies law ­allows an FOL of up to 49 per cent.

The company, whose ­portfolio includes Dubai ­Investments Park, Al Mal Capital and Globalpharma, will have the option of increasing the limit for foreign ownership to the maximum allowed at a later stage, with such an increase bumping up its potential MSCI EM weight if it makes the cut in November, according to EFG.

The bank, headquartered in Cairo, said it does not expect any omissions from the MSCI UAE standard index in the November review, despite concerns being raised earlier about the place of DXB Entertainments (DXBE) – an operator of multi-themed leisure and entertainment destinations in Dubai – in the gauge.

DXBE shares have been among the worst performers on the Dubai stock exchange so far this year, having lost 41 per cent of their value since ­January. 

“As far as numbers are concerned now, DIC is a high probability [of] inclusion, and DXBE should stay in the MSCI UAE Index this November,” Mr Al Hajj said.