Some stock markets suffer from a case of too much information.
Transparency is the only thing holding us back
Some stock markets suffer from a case of too much information. In the US, for example, even the smallest corporate news and most insignificant rumours are reported and scrutinised. In the UK, too, the grittiest details of the tiniest companies are invariably out there for investors to look at. It's as easy as pie, for example, to find out that the Headlam Group, a floor-coverings company worth a mere £155 million (Dh872.9m), derived 85 per cent of its revenues from business in the UK last year.
In the UAE, it's just the opposite. Virtually any investor, stockbroker, mutual fund manager or investment banker you ask can tick down the list of ways in which companies here don't disclose enough, aren't friendly to foreign investors or don't report on time. Market chatter and news stories are routinely denied by top executives, yet they sometimes turn out to be true, leading investors to lose trust in management and start believing the rumours.
Announced share buy-backs are often not completed. Press releases come out in Arabic only, leaving some investors to sort through news stories to get the information they need. The demand for more and better information, both from companies and the Government, could hardly be stronger. "A colleague of mine prints out press releases and puts them into Google translator to get them in English," says Ali Khan, a director at Arqaam Capital, an investment bank in Dubai. "Those kinds of things are clearly a concern from a corporate governance and transparency point of view. What we're also lacking is a calendar of when various economic indicators are released, whether it's an index of real estate prices, consumer spending or sales of durable goods. I think that is a major gap, and it creates an environment for rumours, which is obviously not healthy."
The dearth of information is particularly frustrating because there is little doubt that this country's best companies are some of the strongest in the world, especially when it comes to construction and property development, in which the UAE's biggest players excel. Though they aren't all top-flight companies, and though some have run into trouble because of the global financial crisis, they nevertheless have undertaken some of the most ambitious projects in the world, both in size and architectural brilliance. Western developers can't hold a candle to their audacity and skill. And yet despite their obvious draws, these companies' stock prices have fallen dramatically in the past few months. The stock price of Emaar, the Middle East's largest developer and the force behind the Burj Dubai, the world's tallest building, has slid by more than 80 per cent this year.
It would be presumptuous to say stocks would have performed a lot better this autumn if companies were more open with investors. It is hard, after all, to separate the contagion of the global financial crisis from all the other factors that affect stock prices. But in the long run it's no exaggeration to say the biggest disease affecting our downtrodden markets - and the most significant challenge facing governments and regulators as they push Dubai as the region's financial capital - is one of too little information.
Unfortunately, old habits die hard. Companies in the UAE have grown used to raking in profits and seeing their stock prices rise even as information flows more like the drip-drip of a broken tap than a raging river. Yet amid the ongoing global financial turmoil, which has made the Dubai market index the seventh-worst performer in the world in the past three months, companies must get used to a new reality - one in which they deftly handle news and information.
Instead of threatening legal action and appealing to regulators if things go wrong - as Union Properties did this summer after Morgan Stanley issued a report suggesting property prices in Dubai might fall 10 per cent next year - companies should explain why what they are hearing is misguided, or confirm and dispense with negative information. The markets in the UAE need more speech, more information, more news, more transparency. You can build the tallest building in the world, turn an open sea into an archipelago and bask in the glory of tax-free profits, but you won't be taken seriously by investors everywhere until you open your books. Shares entitle investors to ownership, and no reasonable shareholder will be satisfied until companies start treating them as owners.
But it would be irresponsible to end this column without taking stock of the progress made in the past year to improve transparency and investor relations. A new organisation called the Middle East Investor Relations Society was formed this summer, headed by Arif Amiri, Emaar's senior director of corporate governance. And there were intense discussions last week on the subject at the Dubai International Financial Centre. People are beginning to clamour for a bridge across the UAE's wide information gap.Yet until companies open up relations with investors and show that they have the guts to respond to bad news with grace instead of fury, the UAE will remain a scary place to invest. email@example.com