Dubai's bourse fell sharply on Monday as investors booked profits in the region's best-performing market this year, while Egypt was lifted by the inauguration of a new president and an offer to buy a large stake in investment bank EFG Hermes. The Dubai benchmark tumbled 4.1 percent to 4,771 points, its biggest decline since May 20. Builder Arabtec led losses, tumbling 9.7 percent to 5.42 dirhams.
-- Qatar weak again amid negative World Cup reports The stock has tripled in value this year, making it one Dubai's most volatile names, and many analysts think it has become overvalued; five out of eight think it is a "sell" or a "strong sell", while none view it as a "buy", according to Thomson Reuters data
"Aggressive selling on Arabtec after it broke below the important neckline support level of 6.25 dirhams brought negative sentiment to other stocks as well," said Shiv Prakash, senior technical analyst at NBAD Securities. "Those who were sitting on profits are now booking them, thinking that this pullback may extend. I don't see any fresh buying volume coming in the market."
Most people remain optimistic about the Gulf markets in the long term, but with Ramadan and the usual summer lull approaching, fresh catalysts absent and the markets already sitting on big gains - Dubai is up 42 percent year-to-date - the temptation to take profits is strong. Prakash said the Dubai index could find immediate support at 4,750 points but only a break over 5,200 points would be considered bullish. Some technical indicators point to a deeper drop; Monday's slide confirmed a break on the downside of a symmetrical triangle formed by the highs and lows since mid-May. The pattern suggests the consolidation of the last few weeks will be followed by another leg down: the triangle points to around 4,200 points.
Shares in National Central Cooling Co (Tabreed) slid 7.5 percent on Monday after it said Abu Dhabi state-owned investment fund Mubadala would convert bonds that it holds into 79.4 million new Tabreed shares. The conversion will raise Tabreed's outstanding shares to 738.5 million, diluting other shareholders. Abu Dhabi's bourse also continued to retreat, down 1.0 percent, although the two biggest banks, National Bank of Abu Dhabi and First Gulf Bank, reversed early-session losses and edged up 1.0 and 0.3 percent respectively.
The United Arab Emirates central bank warned on Sunday that low residential rental yields in Dubai and Abu Dhabi might indicate growing imbalances and overheating in the real estate sector. It is by no means clear that authorities will take any fresh action at the federal or local level to cool the sector, but the warning was another source of concern for investors. Profit-taking hit Qatar too, especially in stocks that had shot up earlier as index compiler MSCI upgraded Qatar and the UAE to emerging market status at the end of May.
Islamic lenders Masraf Al Rayan and Qatar Islamic Bank fell 5.0 and 2.0 percent respectively, weighing on the Doha index, which was down 1.4 percent. A drumbeat of negative publicity about Qatar's hosting of the 2022 World Cup is one factor encouraging the profit-taking. Soccer sponsors Adidas, Sony and Visa called on FIFA to deal thoroughly with allegations of bribery in Qatar's bid to secure the hosting rights; Qatar denies the allegations.
The football body's investigator is due to report on the matter in July. Although potential economic losses are minor for Qatar, any move to strip it of the hosting rights could hurt sentiment among retail investors. Egypt's index added 1.1 percent on Monday after Abdel Fattah al-Sisi was sworn in as president on Sunday, a public holiday. Shares in investment bank EFG Hermes jumped 5.5 percent to 15.28 pounds, acting as the main support for the benchmark.
A group of investors represented by Beltone Financial , which rocketed 10.0 percent on Monday, offered last week to buy 20 percent of EFG Hermes at 16.00 pounds per share. The market jumped 4.7 percent in an initial response to the news last Thursday. "There is also speculation that EFG might activate its share buy-back programme in order to counter the offer from Beltone," noted Mohamed Radwan, director of international sales at Pharos Securities. Apart from the EFG Hermes offer, the market was supported by generally optimistic sentiment as the country has an elected president for the first time in almost a year, he added.
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