Individual Investment Dominates Gulf Stock Markets' Performance
Ziad Dabbas Al-Hayat - 11/05/07//
Indexes of the Gulf stock markets' performance in the first quarter of this year have shown obvious discrepancy; as they increased in two markets and declined in four others. The Doha Securities Marker (DSM) suffered the greatest loss in the first quarter of this year, as its index retreated by 8.65%, while it declined by 18.9% in the first quarter of last year compared to a height in the first quarter of 2005, which witnessed heavy speculation, 44.5%, in many Gulf and Arab stock markets.
The Saudi Financial Market index, the largest Arab and Gulf market, lost 6.42% of its value in the first third of this year, compared with 21.9% index losses in the first third of the past year. The index went up in the first third of 2005 by 37%.
The index of UAE stock markets (Dubai Financial Market and Abu Dhabi Securities Market) declined by 3.10% in the first quarter of this year, while the index went down by 27.5% in the first third of 2006 and increased by 94.6% in the first third of 2005.
The three markets are suffering from the speculators' grip on their movement, which led to a concentration of trading in the shares of limited speculating companies. Some of these companies are not characterized by acceptable financial and profitable indexes, thus decreasing the attractiveness of their market prices based on evaluation indexes, chiefly the multiplier prices. These markets are also suffering from the control of individual investment and the weakness of institutional investment, which is characterized by rationality and professionalism when taking decisions of buying and selling, in addition to its long share retention period, thus contributing to the stability of the markets and raising their efficiency.
These markets are also suffering from the low level of transparency and investment awareness of the broad sector of speculators, especially small speculators. It is known that these markets are characterized by their high liquidity level. Despite the fact that in the first quarter of each year, joint-stock companies listed on the financial markets declare the annual results and the data of the first quarter, as well as the distribution of annual profits, these data and distributions have not contributed to improving the performance of these markets due to the deep structural imbalances from which they are suffering.
The Bahrain Stock Exchange index also retreated in the first third of this year by 5% and by 3.9% in the same period of last year, while it rose by 24.5% in the same period of 2005. Bahrain Stock Exchange is suffering, as is known, from low liquidity of the shares of listed companies due to the weakness of foreign and national investment.
In contrast, Kuwait Stock Market Index went up in the first quarter of this year by 9.7%, compared with a decline by 10.57% in the same period of last year, while it increased in the same period of 2005 by 34.97%. Kuwait Stock Market, which was founded in 1972, is considered one of the most mature and transparent Gulf stock markets. It also enjoys good liquidity. Institutional investment plays an important role in the market movement.
Muscat Securities Market index rose by 3.8% in the first quarter of this year, and by 5.13% in the same period of the past year. It is considered the only Gulf stock market that has survived the correction waves that hit the Gulf markets last year. The index rose in the same period of 2005 by 38.5%, taking into consideration that the market was not exposed to heavy trading during 2005 as in other markets. The rise of its index during the year was logical, as it was linked to the performance of listed companies.
Nevertheless, the market is suffering from a low liquidity rate, namely the value of shares traded divided by the market value of listed companies' shares or the number of shares traded divided by the number of shares issued.
The weak performance of most Gulf stock markets has negatively impacted on the activity of the Primary Market in the first third of this year, due to the high correlation between the two markets.
We have noted a weak demand for the Arab Airlines' shares that were offered alone in the UAE stock market. The markets of Bahrain and Muscat have witnessed a single issuance, while no releases have been detected in the markets of Kuwait and Qatar.
The Saudi Financial Market witnessed eight issuances, seven of which with limited capital, while the number of shares issued to the Saudi Kayan Petrochemical Company, the largest issuance of this year, were 675 million shares, as the offering began in April 28.
* Ziad Dabbas is the Security Advisor to the National Bank of Abu Dhabi
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