UAE markets seen muted as day traders dominate

Markets in the United Arab Emirates are seen treading water on Tuesday, with little institutional appetite to increase equity exposure ahead of the year-end, leaving retail traders to chase gains in small-cap stocks.

The Dubai and Abu Dhabi benchmarks have weakened over the past month, but still are up 17.6 and 8.7 percent respectively this year, while some of the heavily traded stocks in the index such as Emaar Properties and Arabtec have gained more than 40 percent in 2012

"The low volumes in the market gives an indication that most institutional investors are waiting outside - they are probably happy with the positions they've achieved this year and are trying to lock in some gains," says Mohammed Yasin, managing director of NBAD Securities.

"The individuals in the market are mostly day traders, hence the low volumes."

These traders typically target small-cap stocks trading at less than AED1, he says.

Government changes to telecom sector taxes last week weighed on the shares of operators Etisalat and du, with the latter's slump helping drag the Dubai index below 1,600 points.

"We're trying to get back above 1,600 again before the year ends - the market will be sideways unless there's a big pick-up in volumes, which would be a surprise," says Yasin.

"There's still some interest in accumulating high dividend yield stocks and I see that continuing, but at a slower pace - it should increase from mid-January as Q4 results start to come in."

These high yield stocks include the two telecom operators, plus Abu Dhabi banks such as First Gulf Bank.

"Abu Dhabi banks are more comfortable in terms of liquidity and less provisions than those in Dubai," Yasin adds.