The UAE's bourses have seen a significant decline in liquidity and the average retail investor is keeping to their regional positions for longer, holding shares that they bought at peak prices.
Investors wary over cloudy debt picture
If you ask any broker on the floor of the Abu Dhabi Securities Exchange, they will probably tell you investor appetite for buying stocks has decreased significantly since November. The UAE's bourses have seen a significant decline in liquidity and the average retail investor is keeping to their regional positions for longer, holding shares that they bought at peak prices.
Both of these trends are partly a reaction to the uncertainty surrounding Dubai World's debt restructuring negotiations, said Sameh Hassan, the head of research at the investment bank Rasmala, based in Dubai. Prior to 2008, investors in the UAE traded shares much more frequently, typically holding a stock for just a few months. Today, they are afraid to sell because valuations are low, or they have given up on local markets entirely until the situation improves.
"I think the losses experienced during the second halves of 2008 and 2009 have driven quite a few investors out of the market," said Mr Hassan. "Additionally, both periods were characterised by considerable uncertainty, rather than risk. When confidence returns to the markets, I could expect to see many of those investors return." Investors do not mind a certain amount of risk and understand that it is part of the game. What they do not like is uncertainty.
"There's a big difference between risk and uncertainty; the former you can quantify, the latter you cannot," said Mr Hassan. But not all is bad in the markets, he said. Lower prices mean investors can buy more shares. "At the end of the day, the person who buys the most stock at the lowest prices wins," Mr Hassan said. "It is safe to say that a stock with a current price of Dh5 has far less downside risk than a stock with a price of Dh20, as the most you can lose is 5 instead of 20.
"Warren Buffett said that only those who will be sellers of equities in the near future should be happy at seeing stocks rise. [Buyers] should much prefer sinking prices." The maxim holds true: buy low and sell high. Just be sure to do your research. firstname.lastname@example.org