Business | Markets
IMF asks UAE to stop propping up stocks
The UAE government should not intervene to prop up sliding stock prices since investors must bear the risk of a market decline, the IMF said.
- By Arif Sharif, Staff Reporter
- Published: 00:00 October 12, 2006
Dubai: The UAE government should not intervene to prop up sliding stock prices since investors must bear the risk of a market decline, the IMF said.
Mohsin S Khan, director for the Middle East and Central Asia for the Fund, told Gulf News that was one of the recommendations the IMF made to the UAE government earlier this year.
The UAE's stock markets, which have been one of the worst performers in the world this year, fell sharply between February and June amid a region-wide correction and are still down 30 per cent since January.
Pressure mounted on the government to intervene after the savage sell-off and led the country's investment industry to ask for the setting up of a market stabilisation fund to prop up share prices.
Some analysts said government-backed funds and institutions bought shares during the decline to help the market and restore investor confidence.
"That [a government intervention] would have created a real moral hazard, since investors would then expect the government to intervene each time the markets fell," Khan told Gulf News in an interview. "It is the investors who must bear the risk of pouring money into stock markets," he added.
The UAE government, however, allowed local companies to buy back shares in a bid to help the market and said it will appropriately sequence initial share offers to avoid bunching.
Khan said share markets in the GCC countries are small and governments should work towards some kind of integration of Arab markets so that investors have the option to trade across the region.
Authorities in the GCC are working towards aligning regulations across the GCC countries to help ease trading across markets.
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