Loss of all sense

UAE nationals are delving into the stock market in their hundreds of thousands. They shouldn't. How appropriate that the shenanigans of the Dubai Financial Market now merit front page coverage in local newspapers rather than the confines of the business section. So they should.

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By  Stephen Corley Published  May 7, 2006

|~||~||~|UAE nationals are delving into the stock market in their hundreds of thousands. They shouldn't. How appropriate that the shenanigans of the Dubai Financial Market now merit front page coverage in local newspapers rather than the confines of the business section. So they should. After all, don’t the gyrations of the local bourse define the very essence of Dubai and the GCC? It’s all about the seemingly unquenchable lust for profit, more often than not at the expense of common sense and the self-indulgent belief that the end justifies the means at whatever cost. The lumbering juggernaut of massive liquidity coupled with the kind of cupidity rarely seen outside the Beckham household make a combination of such hard to resist toxicity, that a comfortable ending was about as likely as receiving the keys to your “freehold” property on time. It would be comforting to believe that this undoubtedly painful experience heralded an educational turning point. Unfortunately, history coupled with natural cynicism lead me to remain pessimistic. Crazy volatility and truly awful endings to bull market stories in this part of the world should provoke a health warning to investors along the lines of Schwarzenegger’s film character who says “I’ll be back.” They occur with such choreographed inevitability that as far as I can see, development of stock lending facilities or a derivatives market here enabling short selling would be a passport to unimaginable riches. Inevitably the name calling and blame has started in earnest, with Saudi brokers blaming the Capital Markets Authority, Kuwaitis blaming the Government and in the UAE, no consensus, merely blaming lack of institutional buyers one moment, nervous retail sellers the next. It strikes me that this debacle gets to the very nature of the regional psyche; after all, the UAE market is fundamentally a national one. Two hundred thousand of the estimated three hundred thousand investors registered at the DFM are UAE nationals. This is a staggering statistic and would, if extrapolated to Great Britain, account for over ten million stock market investors. It’s in the national blood and appears to be endemic. As long as the market is seen as an easier way of making profits than the day-to-day activities of commerce, then the repeat will happen. The task of separating the exigencies of balanced long term investment from avarice seem about as likely as getting a Siamese twin to perform a high-rise dive whilst the other plays the piano. Recent quarterly earnings reports seem to provide more than anecdotal evidence that this greed stretched way beyond the retail investor. In fact, despite it being a requirement for listed companies to furnish the DFM with quarterly earnings statements no more than 30 days after the requisite period, by 1 May a significant number still had yet to do so. The delay seems to lend weight to the suggestion that many company profits have been artificially boosted from non-core activities and with a sharp reversal in stock market fortunes, many of those companies are reticent to publish their most recent figures. The effort expended on stock market snakes and ladders might be better employed in the long run developing a broad commercial base and expanding the trade regimes across the greater Arab nation. Fundamental support of the business initiatives begun by the new, visionary Arab leaders may begin to counteract some of the alarming statistics one finds if looking beyond the rosy picture formerly presented by booming capital markets. In the emerging global economy, Arab states are stunted entities, as revealed in their trade profiles. For example, where up to 90% of export trade from China, the US and the OECD countries is in manufactured goods, the comparable figure from the Arab world is only 17%. In addition, most MENA countries export only three commodities. Failure to diversify trade has impacted on all areas of economic life. Many Arab countries have seen limited private sector initiatives and distorted local economies,in which energy income is often used to support vast state subsidy systems makes for terrifying results. It is estimated for example that 94% of all jobs in Kuwait are generated by the public sector. According to the Arab Human Development Report, one in five Arabs survives on less than two dollars a day, annual growth in income per capita over the past two decades has been a paltry 0.5%, and one in six Arabs are unemployed. The head of the World Bank’s Middle East and North Africa region tactfully summed up the situation, observing that the region “has certainly lived below its potential”. As the region recovers from its equity malaise, investors would do well to reflect on this before the next time. *corely@emirates.net.ae||**||

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