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Thirsty markets

Thirsty markets

Lack of liquidity continues to plague the local financial markets. Regional unrest and a world economy on the brink again won’t help. Will a new SME IPO market?

March 15, 2011 2:14 by

So, liquidity is historically low with little prospect of quick improvement as long as uncertainties persist in the region, and some experts are actually advocating a reduction in the number of markets here in the UAE. So it comes as a surprise to Kipp to hear the latest idea from Dubai SME, an agency of the Department for Economic Development, which is proposing a new breakaway SME IPO market.

Details are still sketchy, but the general idea seems to be that Dubai authorities, after ranking the top 100 SMEs in the emirate, may create an equity market specifically for them. “Dubai SME 100 will serve as the foundation for other initiatives such as the possible development of an equity market dedicated to SMEs,” said Sheikh Ahmed Bin Saeed Al Maktoum, chairman of the Dubai Economic Sector Committee at an event this week.

The Index itself is surely no bad thing if it helps some SMEs attract financing or other help, although the mechanism by which companies are ranked needs to be transparent and rock solid, or interested parties will end up ignoring it. But the equity market sounds like a bad idea to Kipp at a time when the main markets are suffering such low liquidity. SMEs account for 95 percent of businesses in the country, so presumably some SMEs that make the index and subsequently the SME IPO market would be doing so instead of listing on a main exchange. That means the little money currently in the pot would be stretched even further.

We’re all for helping SMEs, but the bigger picture needs to be considered. While the idea itself might not be flawed, the timing could well be – we need more money in the system before we try something like this.

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