This year's best-performing Gulf Arab stock market has stumbled in the last few weeks, and while fund managers say a strong economic outlook means the long-term direction is still up, it may be months before the rally resumes.
Dubai's main equities index jumped about 20 percent in the first two months of this year to levels last seen at the end of 2009. It was boosted by signs that the emirate was recovering from the property market crash and corporate debt crisis of 2009-2011.
Confidence returned to the real estate sector as residential property prices began to rebound, and growth in banks' outstanding bad loan provisions slowed.
But in late February the stock market's uptrend stalled and this week it has fallen sharply - a reminder of the limits of Dubai's regained confidence, and its vulnerability to any interruption in the good news.
Ali Adou, portfolio manager at The National Investor in the United Arab Emirates, said the economic picture had not darkened but investors no longer felt Dubai stocks were particularly cheap.
"The valuations discount between the UAE and other emerging markets is limited now - that's why a correction is needed for this discount to widen again and attract investors," he said.
"There isn't a reason to be bearish as the macroeconomic picture is still intact. A correction would provide an entry to investors who are looking for exposure to the UAE markets."
The Dubai index dropped 1.6 percent on Wednesday to 1,837 points, trimming its year-to-date gains to 13.2 percent.
Technical analysis suggests the drop was a bad omen for coming weeks because the index broke below support at the March low of 1,860 points. That triggered a double top formed by the February and March peaks; the height of the pattern points down to around 1,770 points.
One reason for the recent slide is the passing of the dates on which shareholders in some companies are entitled to annual dividends, analysts say; interest in those stocks has suddenly declined.
But there have been other reasons. The Dubai market has been weighed down by a 30 percent plunge in the shares of major construction firm Arabtec after it announced its intention in late February to raise $1.8bn of capital.
The announcement coincided with a management shake-up led by Arabtec's top shareholder, Abu Dhabi state fund Aabar Investments; in the long run, the changes could help Arabtec expand around the Gulf. But for now at least, shareholders have been focusing on the fact that the capital raising could dilute their holdings.
Another blow was a dividend announcement by Emaar Properties , Dubai's biggest real estate developer and therefore a symbol of the emirate's economic recovery. Emaar's shares soared as much as 52 percent between the end of December and a peak of 5.70 dirhams in mid-March.
But in late February it announced a 2012 dividend of 10 fils per share - the same level as in the previous two years, but lower than some investors had hoped. The stock's rally subsequently petered out and it has lost 11 percent in the last two weeks.
Most analysts do not expect such disappointments to have a long-term impact on the market.
"Emaar at 5 dirhams is close to book value and if your outlook is positive over the next year and a half, it's still a good time to buy," said Amer Khan, fund manager at Dubai's Shuaa Asset Management.
The recent profit-taking should bring back bargain-hunters in this and other stocks, he added. HSBC has an overweight rating on Emaar with a target of 7.7 dirhams.
But for coming weeks, possibly months, the market may have seen its best levels. "Technically, stocks are overbought and the market will consolidate around these levels or a bit lower," Khan predicted.
Adou said budget airline Air Arabia and Aramex , a package delivery and logistics company, were proxies for growth in Dubai's tourism and services sectors and were therefore defensive plays which would outperform during a market downtrend.
Khan said Dubai's pull-back would ultimately prove healthy for the market. "On a medium-term view, fundamentals and valuations have room to fill up. The UAE is recovering and the blue chips will reflect that."