The Dubai bourse may have calmed somewhat after the Arabtec fiasco, but something of an anomaly popped up on Tuesday. On the face of it, it was a pretty quiet day for the Dubai Financial Market (DFM), which dropped by 1.02 percent. The one stand-out player, however, was Bahrain’s Islamic investment bank Gulf Finance House (GFH). Over the course of that day, GFH shares rose close to limit up, by 14.86 percent. The number of trades in GFH stock increased by almost two and a half times on the day before, while volumes were also up many times over. If this were a particularly illiquid stock, that might be a reason for the sudden gain. But in general, GFH trades a decent amount of shares. Furthermore, there didn’t seem to be any particularly positive catalyst for the abrupt rise in the stock price.
On Wednesday morning, GFH put out a statement saying that it had bought a 1.2 million square foot plot of land from Dubai Properties Group in Dubailand, on which it plans to build residential property. The bank will no doubt be hoping for a better result from its investment in the area this time around, having taken a $300 million hit on a cancelled Dubailand project in the middle of the property crash in 2009. Following the announcement GFH shares rose by another 4.6 percent on Wednesday, closing at AED3.47.
So is this just a coincidence? In response to a question as to whether the trading pattern would be investigated, the UAE’s bourse regulator, the Securities and Commodities Authority (SCA) did provide a statement, although it did not say whether it would take this specific issue further.
"...Every unnatural transaction which contravenes or violates the SCA laws and regulations are being closely monitored and dealt with electronically through advanced and sophisticated systems like the SMART system," the statement read. "After detecting any violation, they are thoroughly investigated and evidence gathered before the appropriate administrative penalty is taken, while any criminal violation is referred to the Public Prosecutor’s Office for action. This procedure covers all listed companies."
I also got in touch with GFH to hear their side of the story, and to its credit the bank responded pretty quickly. Initially, it pointed out that “Arabtech [sic] shares, for example, over the last two days, doubled in price along with substantial share price increases for many other listed companies in recent days”. When it was pointed out that Arabtec shares had in fact risen by 0.48 percent and dropped by 2.13 percent on the two days in question, the bank came out with the statement below instead, which is reproduced in full.
“We cannot be certain as to the exact reason behind the share price movement, but suspect that our shares have increased along with the overall market increase of the DFM over the past week and in line with similar increases in the share price for many other listed companies. GFH, when the market was down, lost around 20 percent of its share value, so the recovery of the market has helped to bolster our share price as well. We hope this announcement will further serve as positive reinforcement of our share price alongside other investments and positive developments at GFH.”
So the bank’s position seems to be that the sudden jump in its shares is down to positive market sentiment, despite the fact that the general index dipped on the same day. It’s also worth bearing in mind that Kuwait’s Capital Markets Authority is monitoring GFH’s shares on the Kuwait Stock Exchange, after these traded in high volumes ahead of a company disclosure last year.
“It’s impossible to know what’s happening, but obviously it’s not good,” one stock analyst told me, on condition of anonymity. “But this is our market and this is the reality. Definitely, when something like this is happening, the regulator needs to step in.” Another analyst, with impressive understatement, described Tuesday’s share price rise as “a bit premature”. Neither of them seemed to be particularly surprised.
All this occurred on the very same day as a meeting involving the chief executives of the DFM, the Abu Dhabi Stock Exchange and the SCA, as well as the governor of the UAE Central Bank and the Minister of the Economy. At that meeting, the participants agreed to set up a permanent technical committee to “follow-up transactions that impact the markets to ensure the integrity of trading and the absence of any price manipulation” and “review sharp market movements and submit recommendations about them”.
In light of what has happened with Arabtec, and the increased focus of institutional investors on the UAE bourses following the MSCI upgrade, the SCA needs to hold true to its promises – now more than ever.