Monday, June 26, 2006

Dubai Stocks (so I'm awake now)

I posted that the Dubai Financial Markets seemed to have settled down into a long, boring period, and we could all go to sleep. Perhaps I shouldn't have posted that, as, the next day, they began to drop at a rate of about 2% per day (I did say that could happen, but was unlikely). Since there are trading limits, a drop like the US markets saw in 1929 isn't possible: the limits do not permit a 20% drop in one day. Still, 10 days at 2% will do the trick just as well.

An article in a UAE newspaper claimed there was support at 430, but predicted the support would be broken. After support is broken, technical analysis says there is no way of predicting the next bottom. Complete panic is advised. And today the DFM closed at 428. Grape Shisha also commented on this drop today.

My problem with the technical concept of 'support' is how to use it. The theory says that, at a support level, either stocks will rebound sharply, or if they penetrate the support level, decline sharply. (Away from a support level, the movement need not be as sharp.) This seems to me like fearlessly predicting that a coin will turn up either heads or tails, that we are confident it will not, as it so often does, stand on its edge.

In the US, manipulating the NYSE is impossible (although manipulating the NASDAQ BB market is not only possible, but practiced on a daily hourly basis.) But the entire DFM is about as large as a medium size NASDAQ stock. Which means it is easily manipulated. And not just by Forbes 400 types.

With no short selling, manipulation downward of the DFM is not possible, but, as investors leave for the summer or move their money to other Gulf markets, it could continue down below 200 (which I do not think probable, but certainly possible).

The market has now fallen below what fundamental theory would indicate is fair value, but declining markets usually fall far below fair value before turning around. Catching them near their bottom can be very profitable, but is also very difficult.

When the US market had dropped 60% back in 1930, some people bought, thinking themselves shrewd not to succumb to the general panic. The market declined another 72%. Those who bought at the bottom, of course, saw their fortunes rise rapidly. But there were very few of them.

There is the usual, annual prediction that things have to get better in September, when vacationers return and feel obliged to buy DFM stocks. (Of course, they might decide to sell, instead.)

The biggest DFM stock, EMAAR, is now in an arrangement where investors only have to put 5% down. (It's not actually EMAAR who'd making this possible, a bank is loaning investors EMAAR's normal down payment.) Does this mean that EMAAR can no longer convince investors to buy if they have to put more than 5% down? Or that many more investors can now buy EMAAR properties, greatly increasing the value of the company?

And EMAAR is building all over the world. These project should produce profits, and profits should support the stock. Only they aren't. And the question is, 'Why?'

So, does someone know something about EMAAR (and/or the Gulf) that is not yet public? Something that means, sell everything and get out (including Citizens) while you still can? Or is it just the usual combination of ignorance, rumour, panic, and summer vacations?

We should know in a few months.


Anonymous Anonymous said...

DFM always have surprised me, however, i feel that whatever happening was bound to happen. Emaar's fair value was around 11 and it was traded between 25-28 during the peak times, which was just a hype and no other fundamental support.

Now, the market is weeding out the excess money and most of the shares are being traded at the fair value. The prices might agian go down because of the probabale poor performance of banks which again due to the poor performance of stock market in GCC.

I think, september will show a rebound based on the third quarter results and those guys who follow technicals and strictly adhere to it could see some good profits if not windfall. Those trading on instincts would be weeded out of the market by this year end.

11:53 am  

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