The summer lows that the U.A.E. markets appear to have set in the past days raise a question: How much support can the market count on from valuations?
The DFM closed today at 1,485 pt, while ADX ended the trading session at 2,604.
If we focus on the last 10 years, the markets appear to be extremely undervalued. Recent years history is more relevant than the longer-ago history and the current data points should provide at least some comfort to the bulls.
The picture is not very bullish, but still, it appears local stock markets has worked off its overvaluation over the past three months. It is also very possible to conclude that stocks are significantly undervalued.
Ratios are quite volatile, regardless of whether they focus on forward or trailing earnings, and they have a mixed record at best when predicting the future.
The bottom line? Stock valuations are a lot more attractive today than they were three months ago.
Does that mean the stock markets will be going up in the near future?
Valuations can influence the markets’ short-term direction, but there is no guarantee that, even if you believe that the market were undervalued right now, it won’t become even more undervalued before eventually going back up.
However, small signs, such mixed daily performance and not so negative as the previous days U.S. markets closure today along with unsure gold price direction, indicate that local markets may turn green before end of the week.
It is good to know that valuation’s gravitational pull, weak or not, is no longer pulling the market as strongly downward as it was a month ago – and might even be pulling it up.