UPDATE:
[ DFM reverses losses in Tuesday trading, Arabtec up 10 per cent. ]
Fund managers yesterday blamed brokers for extending excessive credit to investors as the Dubai market lost more than a quarter of its value in less than two months.
It followed another day of heavy selling on UAE markets as the Dubai Financial Market dropped 4.3 per cent, with some stocks touching the 10 per cent downward limit which caps daily declines.
They blame margin calls, where brokers demand more cash from an investor to top up trading accounts, for forcing more selling and extending a rout that has sliced about 25 per cent from the market since its May 6 peak.
"Due to the margin calls, selling becomes an uncontrollable act as prices go down," said Wadah Al Taha, the chief investment officer at Dubai-based Al Zarooni Group. "It's clear by now there has been a violation of margin regulations - exceeding the maximum one-to-one ratio. Many brokers were providing aggressive margin accounts with two-to-one ratios and even three-to-one ratios. This is the result, which has been harming the market."
Selling led by margin calls sent the DFM tumbling as many actively traded shares fell to their maximum one-day price drop of 10 per cent extending losses from the day before.
"It's really hard to quantify the leverage amount due to lack of information or statistics from brokers and banks on a regular basis, by the quarter end with the financial statements it's too late," said Tariq Qaqish, the head of asset management at Al Mal Capital in Dubai.
"But definitely the amount of selling signals there is excessive leverage in the system. The cleansing of leverage from the market will be healthy in the medium term."
The DFM General Index tumbled 4.3 per cent to 3,942.82 points.
Arabtec Holding, whose strategy is being questioned by investors after the resignation of the chief executive Hasan Ismaik, dropped 10 per cent to Dh2.61 a share.
Arabtec drove equities on its home exchange into a bear market last month after the DFM General Index fell more than 20 per cent in two months.
"Today the focus isn't just Arabtec, but the whole market," said Sebastien Henin, the head of asset management at The National Investor, an Abu Dhabi-based investment bank.
"A lot of retail investors are out now, so if they're not here to support the market, who will? Foreign money was already invested in the local markets at the beginning of last month with the UAE inclusion into MSCI's Emerging Markets Index."
For every share that rose, eight declined. Most stocks headed towards or touched the 10 per cent stop loss. Drake & Scull International, Dubai's second biggest contracting company, fell 10 per cent to Dh1.35. Dubai Financial Market Company, the listed shares of the Dubai bourse, fell 9.6 per cent to Dh2.61.
The Abu Dhabi Securities Exchange also declined 2 per cent, led by Aldar Properties which lost 9.6 per cent to Dh3.10 a share.
"Some investors have been obliged to cut their exposure, and that probably contributed to the fall of the market," Mr Henin said.
"The selling is too much," said Khaldoun Jaradat, a stockbroker at Brokerage House Securities in Abu Dhabi. Brokerage House won pre-approval from the SCA for a margin licence but the company's management put plans on hold after financial markets crashed last month.
"I'm pretty sure some brokerages got affected, I cant say who, but they did give more leverage than the quota accepted," said Mr Jaradat. "The leverage helped make things worse and people were hit by margin calls."
halsayegh@thenational.ae
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