Calm on horizon for Dubai market

MARKETS ROCKED: Dubai traders are looking forward to a period of relative calm after the turbulent last quarter. (Getty Images)

Dubai investors could see a period of relative calm return to the markets after a tumultuous end to the first quarter brought the largest one-day swings in months, analysts have told ArabianBusiness.com.

Uncertainty over the health of the global economy and a rush to close positions before the end of the first quarter created headaches for traders in recent days, with the Dubai Financial Market (DFM) moving a total of nearly 5% in trading on Sunday and Monday alone.

“The volatility is so high right now because a lot of speculators are pushing the markets,” Ahmad Elrawy, head of trading at Dubai Financial Trading told ArabianBusiness.com, adding that many were scrambling to close positions before the month’s end.

“The market is not moving with fundamentals for now... it’s just moving on fund managers trying to close their positions,” added Motaz Irshaid, an institutions sales trader for Al-Futtaim HC Securities.

Dubai’s main index plummeted 2.88% on Sunday, it’s largest single-day loss in over three months, as foreign investors sought to liquidate profitable positions to cover heavy losses sustained in Western markets due to the credit crisis there.

The index then rebounded sharply on Monday, recovering almost 2% to post its largest one-day gain in over a month.

Despite such volatile conditions, some analysts predict new regulations introduced by the Emirates Securities and Commodities Authority (Esca) will calm the waters in Dubai.

“We expect the new margin trading law to stop speculators moving the market so much,” Elrawy said, adding that “stronger regulation over leverage will reduce volatility”.

Esca has said it plans to introduce new regulations to cap margin trading to 50% of equity value in an effort to reduce artificial liquidity in the markets and to avoid excess volatility due to overpriced stocks.

At present, traders can obtain up to three and four times leverage in intraday trading, with high net worth individuals allowed to carry larger ratios over longer periods of time.

The new regulations, according to sources cited by UAE daily Emirates Business 24/7 will also demand that brokerage firms maintain capital of no less than 10% of their liabilities.

Stability in the markets also invites larger allocations from many foreign funds which may have been wary of dramatically fluctuating stock prices.

Many analysts see calm in the markets bringing greater profitability and more predictable returns.

“We are seeing some local buying now and the market is picking up,” said Irshaid.

“We have a positive view on the market in the coming quarters. Most of the institutions are expected to post growth of 30% over the next year.”

According to reports by Emirates Business, Esca has prepared drafts of the new regulations and may seek to implement them as early as early as April.

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