Dubai Chamber reveals study on Dubai Financial Market and its consolidation in first quarter

The positive movements could be seen across the globe in anticipation that the stimulus packages have started yielding some results, with most of the central banks and governments stepping in to provide the much-needed rescue operations.

While DFM overall performance declined in January by 7.1% to reach 1520.24 points at the end of January 2009 compared to 1636.29 points at the end of December 2008, it increased in February by 2.6% to reach 1558.98 points at the end of the month and further in March by 0.6% to close the first quarter of 2009 at 1568.46 points. As can be seen in chart1 below, the monthly highest value of index also revived towards the end of the quarter from a dip in February.

Most notably, the volumes on DFM have risen in the first quarter of 2009 compared to the previous quarter. The number of shares traded increased by 61.3% to reach 4.2 billion shares in January compared to 2.6 billion shares traded during December and further increased by 110.4% in February to reach 8.8 billion shares. Driven by another increase of 9.3% in March, the number of shares traded reached 9.7 billion at the end of the quarter. The number of transactions executed during January 2009 increased by 34.1% to reach 98 thousand compared to73 thousand deals carried out in December 2008 and increased by 64.4% to reach 161.1 thousand in February 2009 and further increase by 1.6% to reach 163.6 thousand deals in March 2009. The volumes look healthy and the momentum seems to be gaining.

The value of shares traded in January reached Dhs5.5bn, compared to Dhs4.2bn recorded during December 2008, an increase by 30.3% while the value of shares traded during February increased further by 97.1% to reach Dhs10.9bn. In March, the value of shares traded reached Dhs11.2bn, an increase by 2.2% over the previous month.

In terms of sectoral contribution of trading, the real estate and construction sector ranked first in terms of the value of traded shares in each of the three months of the quarter, to reach Dhs4.8bn, or 42.9% of the total value of shares traded in the market at the end of the quarter. Investment and financial services ranked second at Dhs2.4bn, or 21.5%, followed by the banking sector at Dhs1.6bn, or 14.7%, and the transportation sector amounted to Dhs1.4bn, or 12.1% at the end of the quarter.

In terms of the buyers, the institutional investors turned from aggregate sell position in January at Dhs360m to aggregate buy position in both February and March at Dhs131.1m and 11.3m respectively.

The value of shares bought by foreign investors has however been on the decline over the quarter. While during January the value of shares bought by foreign investors comprised 41.7% of the total value of stocks traded during the period, it dropped to 40.1% and 37.5% of the total value of stocks traded in February and March respectively. Foreign investors have been net sellers in the market over each month of the quarter.

Despite these early gains in the year, the mood remains circumspect. Even though the markets are recovering slowly but it's too soon to sound the all-clear just yet. With the markets gradually bottoming out, it's time to relook at investment strategies. Though the markets are consolidating, even with some gains from lower levels for real estate and financials, challenges facing both the sectors are not underestimated by the traders and analysts.

The first quarter financial results are eagerly awaited and it remains to be seen whether there is a further deterioration from the fourth quarter of 2008.

The next most important data point will be the first quarter result announcements from banks and real estate companies in the region, which will provide a better sense of the health of their balance sheets. The current momentum could result in some stocks and markets entering the results season at the top of the bear market rally.

In addition to global markets driving the ascent, the ongoing discussions about state aid to the real estate sector, federal moves to stabilize banks and stimulate lending and upcoming first quarter results are likely to have large impact on further movements in the second quarter of 2009 in Dubai Financial Market.