For new investors, Gulf IPOs represent a good start – but do widen the asset mix
New retail investors should also look to mix things up in any portfolio
Unlike other international markets, the MENA region has seen a significant uptick in the number of companies listing their shares. The EY MENA IPO report for 2022 shows a whopping 143 per cent increase in the number of listings compared to 2021, when 51 companies went public.
The combined proceeds of over $22 billion registered a 179 per cent rise in value in 2022 compared to 2021.
Last year, the UAE was the most active country in MENA in terms of money raised from IPOs and achieved the highest number of IPOs since 2008. The DEWA IPO in April 2022 helped raise $6.1 billion against an order book of almost $86 billion.
ADNOC Gas, oversubscribed over 50 times, surged in its trading debut after raising $2.5 billion this year.
Regional IPOs stand out as public institutions – those owned by the government and typically associated with public services – are listing their shares.
A sound investment opportunity?
Investing in an IPO can be a good way for new entrants to start their investment journey and follow the long path towards building their wealth for the future. For starters, information about soon-to-be-listed IPOs regionally is typically thorough and readily available to potential investors.
What’s more, stocks with significant growth potential can be lucrative if secured early on because of the possibility of future appreciation. However, while a stock price rise is the ideal outcome, it's by no means assured. There's always a risk that the IPO will be overpriced and the stock price either remains flat or even falls after listing.
There’s also the risk that the price experiences a lot of volatility, so the investing journey could be anything but smooth. Actively investing in IPOs should only be one activity in a larger plan and portfolio any investor has when participating in the financial markets.
Investors new to research, stand to gain from the available company’s prospectus as they ready for the listing. In the region, there’s been a wealth of information in the public domain about each new IPO.
From this perspective, it might be a good idea for beginner investors to consider IPOs, though not as a stand-alone strategy. As a golden rule, an investor’s portfolio should preferably be balanced with a variety of stocks, ETFs, and exposures to other asset classes. Diversification is always key.
Potential listing day gains
This is a benefit for seasoned investors and beginners alike. Listing day gains happen when the share price on the first day of trading is higher than the amount you paid for the shares when you subscribed for the IPO.
So, when the company discloses its stock valuation to potential investors, they can request a certain quantity of shares at that price. For example, if the listed company’s stock price is higher than the offer price, an investor could stand to make substantial profits.
Of course, this is more speculative and there is also the risk that the market thinks the offering price is high, and the price sinks on opening day or shortly thereafter. While listing day gains are potential, it is better to look long-term when determining whether to participate in an IPO of a stock.
While listing day gains are potential, it is better to look long-term when determining whether to participate in an IPO of a stock.
Demand for IPOs in the MENA continues to inspire confidence. The offering of Empower, for example, drew $34 billion worth of orders from investors, about 47 times the original target amount. But it’s important to remember that IPOs are just one way to participate in the stock market, and there are benefits and risks that any investor needs to consider when looking at an IPO happening in the future.
Before you put money into anything, you should do your own research and analysis.
Investors should generally treat IPOs as one component of a larger diversified portfolio. When in doubt, empower yourself by teaching yourself from the many resources available. Investment platforms today offer a variety of tools to support novice and seasoned investors alike with the necessary tools.