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Thursday, March 21, 2019

Chairman's Message

by Khalaf Ahmad Al Habtoor

© Al Habtoor Group

Following the setting up of an official Kuwait stock exchange in 1997, the United Arab Emirates is now the only country in the GCC that does not have an official stockmarket. But potential investors, impatient at the delay, have gone ahead with a succession of public share issues despite not having an adequate financial infrastructure that a bourse would give. Fifty per cent of the shares traded on the unofficial stock exchange in the UAE are those of the forty eight banks of the UAE, another third is made up by the shares of the national telecoms company Emirates Telecommunications Company (Etisalat) and the rest is made up of public offerings such as the Abu Dhabi Islamic bank, Emaar properties, the Oasis International Leasing Company, Dubai investments, the National Corporation for Tourism and Hotels and Dubai National Insurance. All shares are sold through nine licensed brokers within the Emirates.

The UAE's unofficial stockmarket had a capitalisation in 1997 of above twenty one billion dollars, making it the third highest after Saudi Arabia and Kuwait. It accounts for seventeen per cent of the GCC total of one hundred and twenty eight billion. Having seen unprecedented growth of over sixty per cent over the last twelve months according to the Emirates Bank Group index, who monitor UAE stock transactions.

With the unofficial stock market doing so well, there is a temptation for investors and potential investors to risk much more than they can afford to finance stock purchases, which they see as a quick and easy way of increasing their wealth. This is evidenced by the fact that nearly a third of all recent public offerings, have been financed by bank loans taken out by individuals, who, are anxious not to miss what is seemingly a quick way of making a profit, are investing in these new stock offerings.

This is very worrying, for should the market to decline and share values fall below the initial purchase price, many people will find they will not be able to repay their loans or meet their interest payments. This would lead banks to make make larger provisions for bad debt, bearing in mind that they to are quoted stocks too, this will undoubtedly lead to a further decline in the value of shares on the unofficial exchange.

While it is no bad thing to want to invest for the future, it is non-the-less wise to do so prudently, therefore the sooner a formal stockmarket is established with proper regulation, full transparancy and the outlawing of credit based dealings is established the better. Otherwise the insufficiency of information, insider trading and credit transactions that are a feature of the current unofficial stockmarket may create an investment bubble that could burst. leaving many ordinary citizens with bad debts and cause the economy to slow.

Let us not forget The Souq Al Manakh crisis in Kuwait in the 1980's that was caused by some of the same factors we are beginning to see here in the UAE. 

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