By Staff writer
UAE businessman says just because some investors are selling shares at lower prices doesn't mean others should follow suit.
UAE businessman Khalaf Ahmad Al
Habtoor urged investors in the United Arab Emirates to tread with caution but
not to overreact to current volatility/panic in the market. The Al Habtoor
Group chairman, who is also chairman of Dubai National Insurance &
Reinsurance (DNIR) said that Gulf markets don’t need speculators.
“Speculators are unwelcome here,” he said. “We are seeing a knee-jerk reaction to the
sudden drop in oil prices last week, and some investors are unnerved. But there
is no need for panic. Just because some investors sell shares at lower prices
for whatever reason, others shouldn’t necessarily follow this path. The
majority of the investors, who have the holding power, and those who are not
short term speculators, don’t get affected. The problem is; investors who have
highly leveraged positions are under pressure to repay their loans and hence
Al Habtoor added: “Investors panic when prices
drop. They take their money, make losses and run. This is wrong. Our economy is
strong and climbing. Investors should
look at the market with a level head and at the fundamentals of a company
before making hasty decisions and not just rely solely on market rumours.
“On a daily average, the trading volume is less
than 0.25 percent of the total volume of the listed shares in the last 10 days
on the Dubai Financial Market. This shows that the vast majority of the
investors are not affected or panicking.”
Al Habtoor used the example of DNIR: “For instance,
on 14th December, DNIR was named one of the ‘biggest losers’ of the day on the
DFM. This a misleading statement based on a small, single transaction of 10,000
shares on that day. The fact is, 10,000 shares equate to only 0.008 per cent of
the total shares of the Company. This insignificant transaction should not be
used as a yard stick for bringing down the market capitalisation of a strong,
well performing company.”
I see Mr Habtoors point of knee jerk reactions that he says is wrong...but then he explains why it is happening. In fact its not knee jerk reactions at all. Its people highly leveraged in stocks that they couldn't afford to buy from their own 'cash'.
Therefore, when the market reverses and the share price falls below a certain level, people are 'forced' to sell out of their positions. If they could avoid it, they probably would. No one likes to take a loss.
If Mr Habtoor is TRULY of the opinion that speculators are not welcome, can we please see him publicly lobby for these 'leveraged loans for shares', stopped?
The system is harming the system, so to speak.
Imagine the market turmoil in DFM if you could 'Short' a stock like in other markets. The DFM would be smashed and companies would go bust. At least that was one element of the DFM casino that the 'house' got right.
Markets are indeed rationally pricing in a slower economy which is already occurring (although it is obviously not being broadcasted)...some real estate projects will be shelved, some investors have already been burnt etc. so the markets are correct in pulling back.
what explains the volatility is the continued excessive use of leverage and the fact that markets here are dominated by retail investors rather than institutions. Some of these retail investors have quite unrealistic return expectations, so they end up leveraging and buying excessively....and they sell excessively to reduce their loans when markets correct. Their show term, leveraged induced actions end up causing more volatility than other developed markets.