Dubai bourse faces further slump, selloff likely

Dubai's index faces further declines on Tuesday, with selling likely as investors await developments on the emirate's debt burden.

The index fell to a 20-week closing low on Monday at 1,745 points, with most of the big names ending near to limit-down.

"The overall trend will be bearish until we get some more clarity and maybe some good news emerging (on Dubai's debt)," says Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

"We should expect volatility, but that doesn't mean there won't be any buying."

Arabi says today's activity will be the preserve of day traders, with a possible pick up towards the end of the session.

"Volatility creates opportunity and people will look to take advantage and come in with daily moves," he adds.

Markets will remain extremely unstable until the fate of Nakheel's $3.5 billion sukuk is decided. It matures next week.

"Whether this is something more serious is the big question," says Julian Bruce, EFG-Hermes director of institutional equity sales. "The catalyst to give the market direction will be news from Nakheel and in the absence of this, investors don't know how to play the market."

Dubai's index has fallen 16.6 per cent in the four sessions since Dubai World stunned investors by asking for a debt standstill, almost wiping out this year's index gains.

"Dubai's broken support at 1,785 points, with the next support at 1,650 points," says Shawkat Raslan, Prime Emirates head of sales.

While volumes are low, the lack of buyers means there's little to arrest the decline.

"There's a school of thought that says you should accumulate when prices are hammered, but in the short-term who's to say stocks won't fall another 20 to 25 per cent?" says EFG's Bruce.

Abu Dhabi is also in retreat, with Abu Dhabi Commercial Bank and First Gulf Bank tumbling after revealing billion-dollar exposures to Dubai World.

Other Gulf Arab markets are holding up pretty well, with Dubai's troubles unlikely to have much of an impact on companies' bottom line, but sentiment has been hit.

"Investors do not have much inclination to take the (Saudi) exchange much higher right now," says Fouad Dajani, vice president at Credit Suisse Saudi Arabia.

"The absence of local catalysts, compounded by the Dubai story, should see the (Saudi) market flat-line till the end of the year.

"In the short-term, defensive names may well be the stocks of choice, such as those in agriculture, telecoms and retail," adds Dajani.