Gulf Financial Markets: Expectations of Decreasing Losses in Third Quarter
Ziad Dabbas Al-Hayat - 12/10/06//
The index of the Saudi stock market, the largest Gulf and Arab market in terms of market value and volume of dealings, sustained losses amounting to 32.8% during the first nine months of the year compared to the beginning of the year. The loss index rises to about 45% of its value if we compare the index closing at the end of last September to the highest point it reached last February.
Doha Securities Market's (DSM) index losses hit 31.9%; UAE stock market index losses, 30.8%; and Kuwait Stock Exchange (KSE) index, 11.5%. On the other hand, Muscat Securities Market (MSM) and Bahrain Stock Exchange (BSE) indices rose by 11.7% and 1.7% respectively.
It is noticeable that the volume of losses or profits of these markets during the year is linked with the volume of speculation made by these markets during the first nine months of last year, and the reflection of these speculations on the share price rise of the companies listed in these markets. Hence the rise of their performance indices. The indices of the UAE stock market rose 116%; DSM, 92.68%; Saudi stock market, 83.15%; KSE, 60%; BSE, 19%; and MSM, 50%.
Successive correction waves experienced by the stock markets of Saudi Arabia, the UAE, Qatar, and Kuwait this year contributed to the decline of the share prices of most listed companies. They became more realistic, logical and commensurate with the level of performance and the real value of their assets. But they were negatively affected by investment in these markets because of these waves, which have caused heavy losses to a considerable numbers of investors and speculators.
Confidence was shaken, and this has had an obvious impact on the investors' cash flow. This confidence crisis has also been a result of the continuous domination of speculators on the movement of the Saudi, UAE and Qatari stock markets, compared to the limited institutional investment, which is playing an important role in promoting the demand for share prices of leading as well as promising companies. This promotion helps stabilize the markets and raise the level of efficiency. These markets were negatively affected by the results of the companies for the first half of the current year, as a large number of the companies that depend on the profits of their investment in stock markets sustained heavy losses, due to a decline in the share prices of listed companies.
Improved performance of some markets during the third quarter is expected to reflect on the results of these companies for the first nine months of the year. Their investment losses in markets may thus decrease. Many analysts and investors expect that the results of companies in the third quarter and the first nine months of the current year will witness an improvement in profitability and, eventually, the indicators of evaluating their market prices will look more attractive. Investors and speculators will interact with these results, thus reflecting interaction on demand and an improvement in prices.
It is noteworthy that the operating profits of the shares of most listed companies in the Gulf markets is continuing to grow, reflecting a surge in most economic sectors in the Gulf States. This situation has been strengthened by the great oil revenue of these countries during this year. These revenues will allow for greater government expenditure, and private sector activity, as well as GDP growth.
It is noticeable that, during this year, no pre-interaction took place with the quarterly results of companies. In previous years, there used to be pre-interaction in the markets with the purpose of starting rumors before the publication of the companies' financial statements, and to create great demand for the shares of several companies, despite their market price rise followed by the decline of prices after the announcement of the results. This announcement coincides with the investment saying, "buy on the rumor, sell on the news". Also, the lack of interaction in markets this year is connected with the continuation of the state of wait-and-see, caution and fogginess that dominates the investors' decisions. That is why all those who are concerned call on companies during this period to disclose their financial statements as soon as possible, and not to wait until the end of the disclosure period, which expires at the end of this month in several financial markets. They also call for the publication of complete, detailed information and financial statements to help investors calculate the fair prices of the listed companies' shares.
There is optimism shared by some about market interaction with the results of the companies for the first nine months of the year. The optimists expect decreased losses this year. On the other hand, the confidence of the pessimists in market investments remains shaken, and therefore there is the continued instability and fluctuated indicators. There are, of course, the 'half-pessimistic, half-optimistic' people who stand midway between optimism and pessimism about market interaction.
*Mr. Zias Dabbas is a consultant at Abu Dhabi National Bank
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