Drop in foreign investments weighs on DFM

Despite an increase in net buying by Arab investors, the drop in investments by foreign investors (FI), coupled with heavy offloading by institutions, took a toll on the Dubai Financial Market (DFM) last month.

As a result, the DFM general index lost 4.98 per cent and closed the month at 1784.45 points, showing a net loss of 93.64 points during the month over the previous months close of 1878.09 points. The DFM recorded more than a Dh1 billion average daily trading turnover, which signals an undercurrent of positive sentiment.

Banks, companies and institutions that extended buying support in May, taking the DFM index up 16.97 per cent that month, turned out to be sellers in June.

"FIs made money in the previous months and locked it. Now, they are in waiting mode and this will last until the second-quarter results are out. Some institutions became active for a short while on the back of news that the UAE bourses would be given emerging market status by MSCI. But that didnt happen. These were the reasons for the drop in net investment by FIs," Sanyalaksna Manibhandu, Research Head at Emaar Financial Services, told Emirates Business.

The net investment by FIs dipped to Dh154 million in June from Dh540m in May, while Arabs participation increased to Dh286m from a negative figure of Dh157m. As market sentiment continued at low ebb, the total market capitalisation on the DFM also dropped by 3.5 per cent to Dh224bn in June, as against Dh232.2bn in May, according to DFM statistics.

"Its not because of regional factors, but global cues. Foreign investors came in when everybody was looking for buying support. The active participation of foreign investors boosted the confidence of regional investors. Its all quite natural," said Manibhandu.

Banks, companies and institutions were selling in market heavyweights as news about various developments in the industry influenced trading pattern. The total institutional investment was negative by Dh462m, as against the hefty net buying of Dh883m in May.

However, June saw average daily trading turnover above the Dh1bn level, as the total value of shares traded during the month increased to Dh30bn – a 101.8 per cent increase over the Dh14.9bn recorded in May. Trading volume on the bourse also went up 105.60 per cent to 20.1 billion shares in June from 9.8 billion shares in May. Widening the markets breadth, the number of transactions rose to 311,000, an increase of 89.9 per cent over Mays 163,700.

"Trading value is likely to come down in July and August, as the market heads into a holiday season. From the third quarter onwards, the focus is likely to be on small and mid-cap stocks. As a result, turnover will come down from its present levels," said Manibhandu.