Business | Markets
'Crisis of confidence' rocks UAE stock market
The Dubai Financial Market (DFM) has suffered from well-publicised stories of inadequate transparency in the UAE markets that will lead to a "crisis of confidence" among investors if not addressed, according to a senior official.
- By Suzanne Fenton, Staff Reporter
- Published: 23:37 June 30, 2008
Dubai: The Dubai Financial Market (DFM) has suffered from well-publicised stories of inadequate transparency in the UAE markets that will lead to a "crisis of confidence" among investors if not addressed, according to a senior official.
"Deyaar is a very public example of what can go wrong in a public company. If enough people think that there are enough problems throughout the system, even if it's not reality, then you've got a crisis of confidence. And we're heading that way if we're not careful," warned Shehab Gargash, chief executive officer of leading UAE-based fund managers, Daman Investments, at a press conference in Dubai on Monday.
More liquidity
Gargash also said that within Dubai Islamic Bank, stocks have almost "sliced" through 60 per cent of what they were at its recent high and there is "not even a whisper" of what is going on behind the scenes.
He said as the government is a major shareholder in these companies, they need to ensure board members act in "a manner that's good for the market", said Gargash.
"I think the biggest challenge is opaqueness of the market. And the second one is the volatility of the liquidity of the market. You could find the market very dry one month and then very liquid the next month. And that puts a spanner in the wheel of your plans," Gargash said.
Shehab Gargash was speaking on Monday on the sidelines of Daman's launch of the region's first speculative fund, designed to maximise rewards by increasing risk.
"The market has evolved enough to enable us to come up with this kind of product. There is more liquidity and variety in the markets and there is more volatility in the markets. All of these lead to more speculation. Five years ago I couldn't launch a product like this, the market didn't give enough opportunities," he said.
Gargash said that, with a speculator mentality, you increase your risk and increase your rewards. That risk can be mitigated through intelligent analysis.
"Emerging markets typically aim to be more speculative in nature because the money is chasing shorter term gains. The magic formula is to be still able to identify and catch those opportunities and limit the risk," Gargash said.
It is Dubai's volatility that means this kind of fund can work well in the region.
"This kind of fund works in volatile markets because the volatility is what triggers your ability to turn the profits," he said.
He said although the market has been flat in the UAE this year, Daman itself has performed "very nicely" over the last twelve months.
He said Abu Dhabi's market is more solid in the short term but there is no reason to believe there are "any more skeletons in the closets" in companies listed on the DFM.
New fund
Subscription on August 1
- The non-sectoral focused fund will have an initial unit price of Dh100 per share and has a targeted size of Dh200 million. Investment will be on a weekly subscription and monthly redemption basis.
- A minimum of 80 per cent has been allocated to the UAE market.- Investment in the open-ended fund will begin on August 1 and open to all nationalities, even to those who are not resident in the country. It will be regulated by the UAE Central Bank.
- Daman's Islamic fund, launched a year ago, gave a 12 per cent growth over the last 12 months. And Daman's second Emirates fund, launched 15 months ago, gave a 19 per cent growth.
Do you think the latest scandal to hit Deyaar is a wake up call for both investors and the authorities? Should the level of transparency and discolsure in the market be increased? Tell us at letter2editor@gulfnews.com or fill in the form bellow to send your comments.
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