For now, UAE’s new retail investors are bulking up portfolios and holding long term
Writing about the capital markets of the UAE, it always seemed analogous of comparing it to a sense of theater.
With the turbulence investors had gone through in the past, there was always some sense of trepidation. The logical response of this was for the media to treat it with a degree of extreme caution, which is another way of saying that it barely deserved a mention on most days.
Depending on your point of view, the capital markets went through boom-bust scenarios in 1998/2007/2014 and 2018. This zeitgeist changed post-Covid when the privatization program started and the private sector followed with their offerings.
A year-and-a-half later, there is a palpable sense of electricity in the air, as investors, especially the retail kind, came out in droves to vote with their money their sense of confidence in the local economy, picking and choosing companies and winners with aplomb.
Even as decrepit analysts waxed eloquent about valuations, and the usual disclaimers about how investors need to be cautious, there was this overwhelming feeling about a new repository for savings that had opened up.
Retail investors want more
Investors can’t seem to get enough and regardless of the allocations, there is primary and secondary interest that has sustained despite the skepticism. The floodgates have opened and resident expat investors have feasted upon company after company, from Americana to Taaleem, ADNOC subsidiaries to Salik, Al Ansari to Tecom, Dubai Taxi to DEWA.
With total shareholder returns ratcheting up double- and even triple-digit returns. This does not account for existing listed companies that have outperformed more than 95 per cent of the S&P500 index.
Analysts point to the volatility, the level of education that needed to have increased, and quizzed about the procedures to invest. But investors have had none of it by way of excuses.
As the ground clears up for the next set of IPOs (most likely to be kicked off by Parkin, another division of RTA), investors have sat back and watched their wealth grow, allocating increasing amounts of capital to domestic markets, as more and more call the UAE their home.
Investors are in it long-term
This, despite the uncertainty around interest rates, the volatility around returns, the infinitesimal allocations most retail investors have received on their IPO subscriptions, and the fawning coverage domestic real estate coverage receives in the press. (What has been ignored is that listed real estate companies for the most part have outperformed the real estate market).
That brings us to the present. Just because things have gone right thus far is no guarantee that they will continue to do so.
There is always the issue about valuations (which need to be scrutinized on an absolute and relative level). Yet, investors have proven to be more than savvy with allocating their monies. Equally heartening has been the fact that any poll conducted – as well as secondary market data – indicate that despite the white-knuckled volatility that is the nature of all capital markets, investors are in it for the long term.
This augurs well for companies that are lining up with their offerings, but it also serves as a note of caution. Excessive valuations will not be accepted and increased scrutiny of balance-sheets and profit and loss statements are here to stay.
Getting deeper into stock dynamics
This is a clarion call for companies to rise to the occasion and ignore the temptation of cashing in on short-term fads. Where earlier the conversation was all about investor education, the framework has now shifted to bargains and cash flows, from speculation to wealth building.
Such a dramatic change has been the norm in the geopolitical or even the sporting arena, but seldom in the capital markets, which, despite the litany of research, still has had the power to astonish.
As investors cast their eyes on the investing landscape in 2024, there is much to be worried about; from inflation to geopolitics to supply chains and the like. However, on the plus side, there is the scope of steady wealth accumulation, not the sort that makes headlines, but the kind that would make the likes of Warren Buffett and Benjamin Graham proud.
The investing diaspora of the UAE continue to resoundingly vote with their wallets that value discovery is the cornerstone of the ‘Intelligent investor’. Who would have guessed?
Sameer Lakhani
The writer is Managing Director of Global Capital Partners.
