Volume: How Low Are Current Levels? — Volume — GCC Market Analytics
Volume: How Low Are Current Levels? | GCC Market Analytics

Wednesday, 11 August 2010

Volume: How Low Are Current Levels?

There's been lots of articles in the press recently about the lack of volume on regional stock markets and the impact on brokerages.  The problem is especially bad in the UAE: Stock trading slump hits UAE brokers, job cuts.

Given this, I thought I'd take a quick look at volume to see how current levels compare to historical levels.

As a proxy for the UAE market I'm going to look at the perennial bellwether that is Emaar Properties.  Below is the daily volume traded chart for Emaar.

In order to make things a little easier to interpret I've overlayed a 20-day moving average (red line) of the raw volume data.  As you can see, current volume for Emaar is at is lowest level since mid-2008.  However, you can also see that the current level is not exactly unusual from a historical perspective.  There have been six or seven prior periods when Emaar's volume has been at similar or even lower levels.

The problem with just looking at volume data, however, is that we're not really comparing apples with apples.  Comparing Emaar's volume when it was trading at AED 25 versus when it was at AED 3 isn't really fair.

Because of this it's better to look at the value traded rather than volume.

Above is daily value traded chart for Emaar. Again, I've added a 20-day average (red line) so that things are easier to see.  Based on the current 20-day average value traded level things are pretty bad.  The current valued traded level for Emaar not been as low since.....wait for it......mid-2004.   It's difficult to make out on the chart above so here is a zoomed-in version:

So, as far as Emaar is concerned, the recent focus on  lack of turnover seems warranted.  In fact, I looked at several other UAE stocks and the same conclusions apply.  For some stocks things were even worse with value traded levels hitting all time lows.  Here are zoomed-in versions of the value traded charts for UPP and DFM:

So things are bad.  But what about the future?  I'd like to believe that this is a case of  "the darkest hour is just before dawn."  Unfortunately, I don't have any objective evidence to back this up.  

I'm quite contrarian in nature and tend to believe that the crowd is almost always wrong.  Given that the crowd look like they're completely disinterested in UAE stocks at the moment perhaps we can interpret this as a positive.  Perhaps, the data above suggests all the weak holders of UAE stocks have now been flushed out leaving the way clear for the bulls to dominate again? 

That's probably overly optimistic and based on the analysis above I don't think there's enough evidence to have a strong opinion either way and certainly not enough to initiate any trades. 

Is turnover as low in other GCC markets?  I'll take a look in a future post.