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While much has been made out of the stock markets taking a bit of a dive for two weeks, including real estate shares, because of speculations surrounding Arabtec, the property market has remained generally stable, experts say.
''You have to separate the recent events in terms of the fundamentals. They have not affected Arabtec's general performance as a company, nor does it affect other property-related companies,'' said Sanyalaksna Manibhandu, Manager of Research at NBAD Securities. ''Putting all the blame on Arabtec for the recent downtrend is not fair.''
Speculation surrounding the departure of Arabtec's CEO shook investor confidence last month, but the construction giant broke its silence to explain the circumstances, reassuring the market that it would be business as usual.
A closer look at the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) reveal that the stock markets reacted to rumours even before the news of Arabtec CEO Hasan Ismaik's resignation. Real estate shares on the DFM slid by 7-18 per cent between June 19 and June 24, with Arabtec shares down 27 per cent. However, real estate shares had already started experiencing a downward trend since May, before the Arabtec incident.
''Arabtec may have partly been a trigger for the downturn,'' says Manibhandu. ''Something usually has to happen for the market to go down, but there were other reasons in the mix, such as the froth of the Morgan Stanley Capital International [MSCI]. A lot of stocks were going up as people were buying and then there had to be some sort of profit-taking.''
In June 2013 the MSCI had been reviewing the DFM and ADX for an upgrade and to classify the MSCI UAE Index as an emerging market, leading to many buying stocks in anticipation.
By the middle of May the classification became official and it included companies such as Arabtec, Emaar and Aldar in its benchmark emerging market index, yet the market didn't respond with an increased buying appetite.
''Geopolitics haven't been helpful, such as the events in Iraq,'' said Manibhandu.
He further explained that the first-quarter season ends with companies reporting between April and mid-May, typically leading to a sell-off.
''All these factors tied in at the same time,'' says Manibhandu. ''Because the market at the start of the year was so strong, the selloff may have been more forceful than usual.
''Looking at the whole picture, the trend of the market going up started in 2012 - people felt more confident than usual, borrowed more and there was higher margin trading, so the selldown would be stronger than usual.''
Investor sentiment seems to have mellowed in response to Arabtec releasing official statements. On June 24, Arabtec reassured the market with a statement released to the DFM, refuting rumours regarding lay-offs involving hundreds of employees, clarifying it was a limited termination.
The company also said it remains strong at the structural and administrative levels and that it is determined to move forward with its plans for growth and development.
Following the statement, the markets closed on the same day with shares of major companies still experiencing a downward trend, although at a much lesser scale of between 3 per cent and 10 percent.
''If Arabtec's management could have prevented the [information] leak ahead of its board meeting on June 18 and had come out with official statements ahead of the media reports, nothing would have happened,'' said Manibhandu.
Arabtec quickly followed up with a more indepth statement on June 25, in which the Chairman of Arabtec Holding, Khadem Al Qubaisi, reiterated the reassurances of the previous day, stating that the company was continuing with its construction projects and other activities, as well as refuting rumours about the company intending to delist from the market.
He also pointed to the company's strong internal administrative structure and solid financial position driving growth and development.
As for talk of lay-offs in the company, Al Qubaisi said: ''We have implemented a limited restructuring process, aimed at controlling resources without compromising the needs of projects in progress and the established expansionist plans.''
Al Qubaisi called on shareholders and investors to focus on the actual performance of the company, indicating that the movement of shares in the financial market did not reflect the strength and reputation of Arabtec and its expertise in executing projects.
''As it is, Arabtec is now releasing statements and by the second quarter would have addressed all the concerns, and I would expect its shares to go up again,'' said Manibhandu.
The market seems to have reacted accordingly, with the DFM closing on June 25 up by 6.09 per cent, including Emaar by 7.06 and Deyaar 11.11 per cent. Arabtec traded up by 5.13 per cent.
However, some real estate stocks traded down again the following day, including Arabtec, which declined by 5.49 per cent. The DFM dropped by 0.71 per cent.
Amid all this, Manibhandu believes there will be a period of consolidation. ''The Ramadan rally takes place every year,'' he said.
''The market prices in the second quarter will react to the numbers released by the companies by late July to mid-August.
''It is the same pattern each year. How intense it will be this year remains to be seen, but there will be the usual recovery as the market moves forward.''
Source: Property Weekly