Stocks in the UAE, Qatar: the madness of crowds?
The Aabar IPO entered the UAE history books this week with a $107 billion oversubscription, a total subscription exceeding the nation's entire annual GDP. But the UAE stock market is not alone. The Doha Securities Market has also douNothing can justify this sort of ramping upwards of stock market valuations. This is purely the madness of crowds with investors chasing valuations higher and higher. First quarter profit rises from the banks and companies listed in Abu Dhabi, Dubai and Doha are impressive. But look a little behind those Q1 profits and you note that more than half of those bumper profits are actually from stock market trading. So the market is fuelling itself. This is the classic dangerous spike for investors, lured by the prospect of double-digit gains in a single day. The problem is that when the market falls back to more reasonable levels, it will do so suddenly, and all the money that has been made will be lost, and then some. For speculators also tend to be big borrowers. Imagine what would have happened if the Aaber IPO had failed. Borrowers would then have been liable to the banks for the huge amounts borrowed to support $107 billion in share applications; this level of leverage could break the banking system of the UAE. It is not impossible for a big IPO to fail. Remember that the British Petroleum privatization years ago was a big embarrassment for the UK Government. Things can and do go bump in the night! Besides who really wins in the Aaber IPO? Share allocations will be so small that investors will be lucky to cover the costs of borrowing the money for their applications; the banks and IPO promoters will be the only winners, this time. But stepping back to earth, a dangerous price spike has developed in the UAE and Qatar with investors taking leave of their senses and chasing share prices to unsustainable levels. Barbers in Doha are passing on share tips to clients, and the biggest meetings in town are now on the stock trading floors of Dubai, Abu Dhabi and Doha. It's a scene that has been repeated many times in the history of investment, and there has only ever been one conclusion. bled in value in less than four months
The Aabar IPO entered the UAE history books this week with a $107 billion oversubscription, a total subscription exceeding the nation's entire annual GDP. But the UAE stock market is not alone. The Doha Securities Market has also douNothing can justify this sort of ramping upwards of stock market valuations. This is purely the madness of crowds with investors chasing valuations higher and higher. First quarter profit rises from the banks and companies listed in Abu Dhabi, Dubai and Doha are impressive. But look a little behind those Q1 profits and you note that more than half of those bumper profits are actually from stock market trading. So the market is fuelling itself. This is the classic dangerous spike for investors, lured by the prospect of double-digit gains in a single day. The problem is that when the market falls back to more reasonable levels, it will do so suddenly, and all the money that has been made will be lost, and then some. For speculators also tend to be big borrowers. Imagine what would have happened if the Aaber IPO had failed. Borrowers would then have been liable to the banks for the huge amounts borrowed to support $107 billion in share applications; this level of leverage could break the banking system of the UAE. It is not impossible for a big IPO to fail. Remember that the British Petroleum privatization years ago was a big embarrassment for the UK Government. Things can and do go bump in the night! Besides who really wins in the Aaber IPO? Share allocations will be so small that investors will be lucky to cover the costs of borrowing the money for their applications; the banks and IPO promoters will be the only winners, this time. But stepping back to earth, a dangerous price spike has developed in the UAE and Qatar with investors taking leave of their senses and chasing share prices to unsustainable levels. Barbers in Doha are passing on share tips to clients, and the biggest meetings in town are now on the stock trading floors of Dubai, Abu Dhabi and Doha. It's a scene that has been repeated many times in the history of investment, and there has only ever been one conclusion. bled in value in less than four months
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