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Sat 4 Nov 2006 08:00 PM

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Investors fear new falls as stocks slide

Alexandra Dubsky

Investors are fearing a new decline in stock prices, after the UAE stock markets lost some US$2bn in market capitalization last week.

“Since last Sunday the markets have been declining every day - and we cannot expect this trend to change before next week. By then, we will hopefully see a different picture,” Ahmad Abdul Rahman, analyst with Amanah Capital, told Arabian Business.

The Dubai and the Abu Dhabi markets lost US$1.4bn and US$517m, respectively. Emaar declined the most, losing US$490m in market capitalization and around 2.12% of its share price to close at US$3.77 when this magazine went to press.

“When Emaar losses, the market follows and all shares decline,” Rahman says.

“The problem is that investors saw less trading volume in Ramadan, specially in the last two weeks before the Eid holiday, so they took out their money. This is the nature of the local market - investors act too speculative and are in there for quick profits. When they see profits of just 10 points they want to cash in and in the same manner they immediately leave a declining market. They do not place their investments according to companies’ results, but due to short time market highs or lows,” Rahman explained.

“Especially in Dubai investors are too short sighted and indefinite. The Abu Dhabi market moves more slowly and steadily, but is not comparable to Dubai in terms of volume,” he added.

Dubai’s benchmark index fell more than 2%. The Abu Dhabi index lost 0.62%. In total the UAE securities market general index declined by 1.24% to 4,512.09 points.

Telecom firms were among the top losers. Newcomer du had more than US$190m pared from its market value - and Etisalat fell by US$0.014 to US$5.3, after the firm’s announcement that it expects a loss of 20% of the local telecom market to rival du.

“Investors might have reacted to the absence of the IPO’s oversubscription profits from du’s financial statements. But although du is not performing strongly at the moment it will be a hot tip for next year." Rahman said.

“Some shares were less affected by the decline than others - Arabtech, Abu Dhabi Islamic Bank and Dubai Islamic Bank recorded only minor losses," according to Rahman.

“Many investors have now shifted to the Kuwaiti and the Egyptian market, the only Middle Eastern bourses that recorded profits last week," Rahman revealed. “The Egyptian government announced to sell the Bank of Alexandria to the Brazilian Sao Paulo Group for US$2bn, which boasted the market immensely and prompted many shareholders to shift to Egypt. The Kuwait market has also performed well.”

He added: “Investors need to come back to the market, so trading volume can get back to its size before Ramadan. The market correction of this spring can definitely happen again, but we of course do not hope or assume so.”

Experts have been warning for months that the earlier market collapse could repeat itself, since emerging market bourses are known to move in cycles. According to the IMF short time bearish behaviour usually follows a stock market crash, but cannot prevail since very fast recoveries after a crash are unrealistic with financial markets.

Internationally, the US markets closed higher week-on-week, paced by strong 3Q corporate earnings and despite last Friday’s consolidation. But a weaker than expected 3Q GDP growth estimate pushed investors into profit taking mode after the recent strong gains.

Stocks from the consumer durables, media and energy sectors are helping the market higher, while stocks from the health care equipment and technical hardware are under pressure, according to Luxembourg broker Internaxx. “We are cautious for the week ahead,” the firm said.

European markets followed Wall Street and also closed in the red last Friday. Stocks from the telecommunications, automobiles and parts and travel and leisure sectors closed higher, while shares in the insurance and health care declined.

Technically, if the upside momentum should prevail, this week should see some profit taking, pushing European indices towards their rising 20 day moving averages.