Dubai's decision to sell shares in some of its large-cap companies would seem to bode well for the Dubai Financial Market, but that is not the way investors see it.
Dubai efforts to raise cash fail to cheer market
Dubai's decision to sell shares in some of its large-cap companies would seem to bode well for the Dubai Financial Market (DFM). But that is not the way investors saw it yesterday.
Sheikh Ahmed bin Saeed Al Maktoum, the chairman of the Dubai Supreme Fiscal Committee, said yesterday the emirate may sell some of its assets and tap international bond markets to raise cash.
But the market was not cheered by Dubai's attempts to reduce its debt, even if it meant the introduction of shares in blue-chip companies such as Emirates Airline. The DFM General Index touched a 10-week low.
DFM Co was among the shares falling, closing at a three-month low of Dh1.50. The company gets most of its revenue from trading commissions and as such its fortunes are closely tied to volumes and investor confidence.
Analysts said Dubai's efforts to raise cash were in part an attempt to revive local markets - which had struggled to pick up since last year - bring back volume and restore some positive momentum. The volume of traded shares in Dubai is about the 80-million mark, down from a high of about 900 million in 2006. After a strong post-Ramadan performance last month, the Dubai index has fallen 7 per cent in the past month.
"The selling could reflect some liquidity for the companies themselves, but this won't reflect on (other) shares," said Amjad Bakir, the trading manager at Wafa Financial Services.
"There is no immediate reflection on the market because the cash will go to the company, so it is positive for the company only. Even if it does reflect on markets, it is only for one or two days," he said.
It may be that investors yesterday were preoccupied with international issues, such as Ireland's pending bailout and other concerns in the euro zone, and overlooked the potential market impact of the Dubai news.
In the long run, the introduction of high-profile names to the Dubai exchange would almost certainly be a boost to DFM Co. But given that caution is the prevailing sentiment at the moment, investors may prefer to wait and see if that becomes a reality.