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Sunday, 5 September 2010

GCC Market Analytics: Dubai Index Increases 2.69%. What Next?

The DFM General Index increased by 2.69% today. The last time the Index moved up by more than 2.50% in a single trading session was way back on June 20th (that was 55 trading days ago). Today's close also represents a 50-day high for the DFM Index.

On the chart below I've highlighted all previous instances of +2.50% daily Index moves going back to October 2008 (yellow diamonds). The larger blue diamonds represent +2.50% daily moves which coincided with 50-day closing highs.

As you can see, it's been quite a long time since a +2.50% daily move and even longer for one that coincided with a 50-day Index closing high.

I did a quick study of next day DFM General Index returns following +2.50% daily moves, going back to late 2005. If you had systematically bought the Index (hypothetically speaking, that is) at the close on a +2.50% up day and then sold at the close on the following day you'd be down about 50% by now:

This represents quite a strong downside effect following +2.50% daily Index rises.

Looking at the data in a bit more detail we find that 68% of days following +2.50% moves have been negative whilst 32% of days have resulted in another Index increase. When the Index has fallen in value following a +2.50% move it has lost -1.94%, on average. When a +2.50% day has been followed by another Index increase it has tended to rise by +2.40%, on average.

In short, the probabilities suggest a down day tomorrow. However, if the DFM General Index can overcome these odds we could be in for another sizable increase tomorrow.

I took an even quicker look at how the DFM General Index performed in the five and ten days following a +2.50% daily move but didn't find anything that pointed to a significant upside or downside price move.

It's also worth bearing in mind that the outlook for the DFM General Index is bearish in both the Weekly GCC Index Analysis and Weekly GCC Trend Analysis.

It's a pleasant change to see the DFM General Index putting in a nice daily increase but remember: "one swallow does not a summer make."

Dubai Stocks Gain Most Since June on Global Growth Confidence; TA-25 Rises - Bloomberg

Dubai shares rose the most in more than two months, leading a Middle East rally, after growth in U.S. private employment fueled optimism that the world’s biggest economy will avoid a recession.

Emaar Properties PJSC, the developer of the world’s tallest skyscraper, soared 5.4 percent and Emirates NBD PJSC, the United Arab Emirates’ biggest bank by assets, advanced the most since July 19. The DFM General Index jumped 2.7 percent, the most since June 20, to 1,538.09 at the 2 p.m. close in Dubai. The Bloomberg GCC 200 Index of Gulf stocks gained 0.5 percent at 3:18 p.m. in Dubai. Israel’s TA-25 Index climbed 1.6 percent.

“Tracking the strong international markets performance over the weekend helped heavy-weighted stocks break above key resistance points,” said Marwan Shurrab, assistant fund manager and chief trader at Gulfmena Alternative Investments Dubai. The upcoming Muslim Eid holiday also helped, he said.

Dana Discovers Gas Well in Egypt With Up to 90 Billion Cubic Feet Reserves - Bloomberg

Dana Gas PJSC, a United Arab Emirates energy company, said it made a gas discovery in the Nile Delta, Egypt, the company’s fourth this year.

The preliminary reserves estimate for the South Abu El Naga-1 ST, the West El Manzala Concession, is in the range of 50 billion to 90 billion standard cubic feet of gas, with 1 million to 2 million barrels of associated condensate, Dana said in a statement to the Abu Dhabi bourse today.

GCC Market Analytics: GCC Sector Analysis

Below are the year-to-date percentage returns for all GCC market sectors. The top performers this year are the insurance sector in Qatar and (surprisingly?) the banking sector in Kuwait.

Seven of the bottom ten performing sectors are from the UAE market. The Dubai utilities and Abu Dhabi real estate sectors have been by far the worst sectors so far this year.

Is there a tendency for the best or worst performing sectors to continue to perform well or poorly in the future? I'll be taking a look at sector rotation strategies in an upcoming post.


Magnate with more in sight than oil in his homeland, Iraq - The National Newspaper

The battered inhabitants of the brave, new, democratic Iraq must be wondering what could hit them next.

Nearly six months after their enthusiastic participation in national elections, Iraq still has no legitimate government.

More than seven years after the US removed Saddam Hussein, the country’s infrastructure remains in tatters and most Iraqis receive less than two hours of electricity a day from the national power grid – a situation that is sparking violent protests.

Istithmar & Co turn focus on sales - The National Newspaper

Few people were surprised when Istithmar World, the private-equity arm of the government-owned conglomerate Dubai World, decided to stop making new investments late last year. The firing this year of David Jackson, the company’s freewheeling chief executive, also raised few eyebrows.

Mr Jackson had presided over the assembly of a business empire that spanned the globe, financed with billions of dollars of debt at a time when money flowed like water through the global financial system. Yet as banks and investors retrenched after the financial crisis, the underpinnings of Istithmar’s business model began to erode, ushering in a new era of restraint and causing financial turmoil for Istithmar and many of the companies it acquired.

It quickly became clear that the investment strategy Mr Jackson personified was going out of style. According to one source who did not want to be named, between its founding in 2003 and the end of 2008, Istithmar had spent about US$11.6 billion (Dh42.6bn) on assets including prime property in London and New York, and controlling stakes in the retailers Barneys New York and Loehmann’s.

Dubai takes in Dh3bn from asset sales - The National Newspaper

Dubai Government-owned holding companies have raised at least Dh3.1 billion (US$843.9 million) in asset sales over the past year and are expected to raise billions more to repay debts and find a firmer financial footing after the financial crisis.

The sales have so far been concentrated at the investment arms of Dubai World and Dubai Holding, two of the emirate’s three main government conglomerates.

They have offloaded stakes in a wide range of companies and property assets bought near the peak of the global credit bubble in 2006 and 2007, part of a plan to raise cash and put expensive mistakes behind them.

GCC Market Analytics: Market Breadth: Part II

In the previous post on market breadth I looked at the advance/decline indicator and how it could be applied to the Dubai market to determine the future price direction of the DFM General Index.

In this post I want to share the results of applying the advance/decline indicator to other GCC markets.

A quick recap. The advance/decline indicator is calculated on a daily basis and represents the net number of rising versus declining stocks as a percentage of the total number of stocks. The daily advance/decline percentages are averaged over a certain number of trading days so the results are smother and easier to interpret.

When the advance/decline indicator in greater than zero this tells us that more stocks have risen in price than fallen. When the indicator is less than zero more stocks have declined in value.

In the previous post I looked at the performance of the DFM General Index when the advance/decline indicator was either above or below zero. The results showed that the Index tended to increase in value when the advance/decline indicator was above zero and decrease in value when it was below zero.

The charts below show the results of applying the advance/decline indicator on other GCC markets. The charts on the left-hand side show the historical price performance of each GCC market index and the corresponding advance/decline indicator. The right-hand charts show the historical performance of each market index (blue line) and the performance of the index when the advance/decline indicator was above zero (green line) or below zero (red line).

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As you can see, the above results are similar to those for the DFM General Index in the last post. The performance of all market indexes was significantly better when the advance/decline indicator was above, rather than below, zero. Quite impressive results for such a simple application of the indicator.

In the next post on this topic I'll introduce a study based on the advance/decline indicator which I'll use to evaluate the GCC markets on an ongoing basis.


P.S. The results above are based on slightly different rules than I used in the last post. In this post I used a 10-day rather than 20-day advance/decline indicator and there was no requirement for the indicator to be greater/less than it was two weeks ago. The reason for the change was simply because the rules used in this post performed more consistently across all markets than did the rules in the last post.