Emerging Markets

Dubai stocks see wild ride on housing fears


Stocks in the Middle East metropolis of Dubai continued to see wild fluctuations on Tuesday, with the benchmark index dropping 4 percent, before regaining ground to trade 3 percent higher.

The Dubai Financial Market (DFM) General Index ended the day up 3.17 percent at 4,067 points, after days of bumpy trading amid concerns about the city state's booming housing market. The stock index saw its biggest one-day fall since August on Tuesday, and finished June with a monthly drop of over 20 percent – its largest monthly fall since November 2008.

While this might be enough to scare away some risk-averse investors from the United Arab Emirates, the bourse was one of the best performers last year and is still up 20 percent year-to-date after a stellar rally in April and March.

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Real estate stocks have been driving recent market movements. Dubai suffered a massive real estate crash in the wake of the 2008 financial crisis and there are fears that another bubble could be looming, with property prices growing 27.7 percent, year-on-year, in the first quarter of 2014, according to real estate agent Knight Frank. Regulators have been busying themselves with preventive cooling measures in response.

There has been a particular focus on Arabtec Holdings, the construction company behind the world's tallest building, the Burj Khalifa, over recent weeks. On Tuesday, the stock weighed down Dubai's wider index with a drop of 10 percent, before recovering to trade 10 percent higher.

The company has been under the microscope due to a bout of restructuring, with investors still unclear on the company's plans.

Nishit Lakhotia, head of research at Bahrain-based Securities & Investment Company, told CNBC that he hoped there would be more clarity from the new management on the company's strategy. He added that he was especially looking for more information about its real estate division and merger and acquisition plans.

"The stock remains very volatile and without sufficient details on their growth plans and ongoing restructuring, it is challenging to have a fair valuation for it," he said.

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Amer Khan, a senior executive officer at Dubai-based SHUAA Asset Management, said he believed Arabtec stock's volatility was hardly surprising given its recent spectacular rise. The company's share price rose over 270 percent between the start of the year and mid-May.

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Lakhotia, however, said he remained unconcerned about the Dubai housing market in general, and believed officials were fulfilling their duties to prevent another bubble from inflating. Knight Frank said that although Dubai's annual growth in property prices topped global rankings in the first quarter, a quarterly price rise of 3.4 percent was an indication that the cooling measures were having an impact.

But Lakhotia added that double-digit growth in real estate prices would be hard to sustain, and a "consolidation" in the housing market should be expected in the coming quarters. It comes after property in the city state lost more than 50 percent of its value between 2008 and 2011, as excessive speculation came home to roost.

"We believe this sell-off (in the DFM in June) offers very good opportunity for fundamental long term investors to enter, especially in the blue-chip names," Lakhotia said. "We remain bullish on the Dubai market at current levels."

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Last month's dip in Dubai's stock market could also be a byproduct of the United Arab Emirates ascension to emerging market status, according to Matthew Spivack, practice leader at emerging market advisory firm Frontier Strategy Group. The ongoing conflict in Iraq could also have led some investors to exit positions in the Middle East, he added.

"Investors who bought into the stock market ahead of the reclassification might have been looking for an excuse to sell, especially ahead of Ramadan when business slows down," Spivack told CNBC via email.

"The general feeling that house prices are too high and in need of a correction in Dubai, and the lack of clarity regarding what is going on with Arabtec might have presented that opportunity. Housing prices are likely to remain a concern."