In Theory: Trading between speculation and reality

It has been three years since the launch of official trading on the UAE Stock Exchange, as this stock market is considered new by all standards compared with other stock markets in the other GCC states.

Therefore, the local stock exchange is still dynamic and in a state of constant development.

Indeed, local investors still need more experience, investment awareness and healthy practices that do not rely on inaccurate statements about the movement of prices of many key stocks, whether by rises and declines during very short periods not exceeding a few hours in certain cases.

It is noted that the UAE stock exchange is one of the most fluctuating regional stock markets in the course of daily trading.

This does affect many investors and burdens them with additional pressures arising from the facilities given to them by banks and makes them suffer huge losses that leave their negative effects on the market, trading on the one hand and their own lives on the other hand.

There is no doubt that such investors solely assume the responsibility for taking their own decisions on the basis of haphazard information or engage in speculative activities that by far exceed their financial resources and capabilities.

However, it is also true that the stock exchange does need a lot of rules and regulations that govern its operations in the future.

In this brief commentary, we do not deny the effects of speculation and rumours in all financial markets in the world, including European and US markets.

However, this takes place even in transparent markets and in circumstances where investors enjoy a high level of awareness and rely upon financial consultants before taking any investment step.

The current market conditions are generally satisfactory. Joint stock companies enjoy a high performance level and make huge profits and there is a high level of liquidity in the local and regional markets.

However, such factors do change with the change in circumstances and the possible fall in oil prices that generate cash liquidity which could bring about additional pressures upon the stock market. These could result in negative consequences.

At present, there are several positive developments and factors that contribute to protecting the market against any possible decline.

However, the continuation of such factors in future is not guaranteed. The firm guarantee lies in providing the complete set of laws, regulations and principles needed for the operation of the stock market under comprehensive guidelines.

In such a case only can one talk about a growing market that supports economic development and secures the rights of major and small investors.

Stock markets in most countries of the world represent a significant investment pool through which shares of public companies may be launched and traded including the shares of manufacturing companies and organisations.

Fluctuation

While the stock markets in the Gulf states, including the UAE, are dominated by trading in the shares of banking, real estate and service companies and firms, this picture will change in the long run to be based upon the manufacturing companies operating in various industries, especially petrochemical industries.

An ideal and successful example of this is Sabic.

With the above in mind, one cannot rule out the possibility of floating part of the shares of UAE industrial companies for public subscription in the future in addition to setting up new industrial companies that have all reasons of success.

This will further enhance the significance of the stock market and its role in serving development.

Until we reach such an advanced investment level, the stock market will continue to fluctuate between speculations and rumours on the one hand and good performance and large corporate earnings on the other.

It will then be possible for a conscious investor to reap significant gains. However, a small speculator will have to bear the brunt of psychological pressures and stress until the stock markets become more mature.

At the moment, our own stock market is on the right path to achieve its basic fundamentals in the next few years.

The writer is a UAE economic expert