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Nervous breakdown in UAE stock markets


A look at the causes of panic in UAE stock market

June 25, 2014 5:09 by

By Atique Naqvi

Two of the best performing stock markets in the world last year, Dubai and Abu Dhabi, have suffered a significant setback in the past few days.

The Dubai Financial Market index fell by 10.2 per cent from June 16 until this afternoon, while the Abu Dhabi index was down 4.8 per cent during the same period.

Every year, before Ramadan, the regional stock markets witness a sell-off drive because traders and shareholders want to make a quick buck before the quiet period when volumes are quite low. However, internal developments at a regional construction giant triggered last week’s onslaught on the UAE bourses.

The CEO of Arabtec, Hassan Ismaik, resigned, or was asked to leave the firm, last week, according to industry insiders. The CEO is accused of expanding his control over Arabtec by increasing his equity share in the company and making tall claims about the projects under the firm’s portfolio, says a UAE stock market analyst, who wished not to be named.

Former CEO Ismaik raised his stake in the construction firm from 8.03 per cent to 21.47 per cent in May this year. He currently holds 28.85 per cent of the total shares, and he is willing to sell his stake at AED6-7 per share, according to media reports.

After Ismaik’s exit, the shareholders got nervous and started selling Arabtec shares right, left and centre.

From AED9 per share a few weeks back, the Arabtec scrip has been reduced to AED3.12 per share – a loss of 65.3 per cent. Approximately $6 billion has been wiped off Arabtec shares in the past few weeks.

Taher Safieddine, an analyst with Shuaa Capital, says while retail investors have been looking to liquidate some of their securities assets, the Arabtec episode has certainly affected the UAE stock markets because the company was very slow in clearing up the rumors.

“Reports in media, such as the delisting of Arabtec from DFM and Aabar selling its stake off in Arabtec, have contributed in increasing the anxiety among share holders. Better communication from both the company and the bourse regulator would have limited the downslide seen in the past few days,” adds Safieddine.

Following the Arabtec debacle, traders and shareholders, who were already planning for a pre-Ramadan sell-off, got nervous and started selling, not only Arabtec shares, but other stocks related with the construction sector.

According to reports from the bourse, share values of Aman, Deyaar and Dubai Investment, National Cement and Gulf General Investments were down.

Panic selling on both UAE’s bourses has led to margin calls. As a shareholder of a company, you would receive a margin call from a broker if one or more of the stocks you had bought (with borrowed money) decreased in value past a certain point.

A shareholder would be forced either to deposit more money into the account or to sell off some of his assets.

Speaking on behalf of a stock brokerage firm based in Dubai International Finance Centre, an analyst, who did not wish to be named, says there is no need to panic as Arabtec, along with the market regulator, has increased the communication between the construction firm and investors. “The negative sentiment is cooling down and stability will return to the UAE stock markets next week,” they add.

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