A decade after the disastrous dot-com crash, internet stocks are once again in danger of becoming a "bubble" market.
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Last Updated: May 11, 2011
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"Whether this is another dot-com bubble depends how you define bubble," says Adrian Drury, a principal analyst at the research company Ovum.
"If you define it as an irrational exuberance for stocks exposed to growth in specific markets, such as social networking, then we are not on our way to a second dot-com bubble, we are already there."
Investment in internet start-ups has so far this year reached its highest level since 2000, the height of the dot-com boom that preceded a crash that wiped billions of dollars off the value of technology stocks.
According to Thomson Reuters Deals Intelligence, about US$5 billion (Dh18.36bn) was invested in internet start-ups in the first four months of this year. Although this is below 2000, which saw investment of $55bn over the year, it is the highest level since the turn of the century, and the dot-com investment market is growing fast.
Investors are flocking to internet stocks, particularly those at the stage of making an initial public offering (IPO) of their shares on the stock market.
Some analysts see this trend as evidence that we are already witnessing the start of a bubble, an inflated market which must eventually burst, in dot-com stocks.
"We would concur that there is a huge amount of interest in internet companies, particularly at the pre-IPO stage," says Mr Drury.
He quotes the example of Renren, a Chinese internet-based social networking site that offers Facebook-style services to China's rapidly growing number of online consumers. The company had its IPO on the US Nasdaq stock exchange last Thursday.
"This was a double whammy of social media and a Chinese market growth story. Both are places where investors want to be right now. Anything in the social networking space is experiencing intense investor interest," says Mr Drury.
"The projected price of Renren shares at its IPO was in the range of $12 to $14. On the first day of trading, the shares peaked at $18.5 before settling at around $17. This is a result of the fact that investors are rushing to get into Facebook-like social networking stocks."
Investor enthusiasm for the Renren IPO should also be seen in the context of uncertainties surrounding the company's future. Aside from the difficulties of gauging precise user numbers for social networking sites, the fact Renren is based in China raises a question mark over the stock.
Some market watchers privately express fears that Chinese internet start-ups, such as Renren, are vulnerable to a government crackdown if people start to use the medium to express views the authorities consider politically suspect.
Since the political upheavals in North Africa and the Middle East, the Chinese authorities have become overly sensitive regarding the exchanging of information and opinions on the internet.
China's history of dealing with social networking sites from outside the country is not a happy one. It has previously blocked leading western websites Facebook, Twitter, Flickr and YouTube.
All China has to do is ban or simply block a website it considers undesirable, something the government has seen fit to do in the past.
But these reservations did little to dampen the desire for Renren shares at its IPO.
This is seen as evidence of a building investor interest in the long-awaited Facebook IPO. Facebook is estimated to be worth about $70bn and, if it goes public as expected, the feeding frenzy for social networking shares could send the market for internet stocks into overdrive.
Given the rapid evolution of new web-based services such as social networking and the fact the last dot-com crash was a decade ago, the current level of investor enthusiasm for internet stocks is understandable. But the big question is how big a new dot-com bubble will grow before it bursts.
Investors and analysts believe that, this time around however, the boom in internet stocks is based on more secure foundations than that of a decade ago.
Underpinning the surge in internet stocks is rapidly evolving technology enabling web-based communications to explode across the globe.
According to the research outfit International Data Corporation, more than 100 million smartphones were shipped worldwide in the last quarter of last year. This represents an increase of more than 87 per cent over the same period in 2009.
"The driver of this phenomenon is the rapid growth in the adoption of smartphones," says Mr Drury. "This is having the effect of putting powerful hand-held computers into the hands of a mushrooming sector of consumers across the world.
"This is the underlying market dynamic powering the current boom in internet stocks."
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The specs
Engine: 77.4kW all-wheel-drive dual motor
Power: 320bhp
Torque: 605Nm
Transmission: Single-speed automatic
Price: From Dh219,000
On sale: Now
Company%20profile
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How Islam's view of posthumous transplant surgery changed
Transplants from the deceased have been carried out in hospitals across the globe for decades, but in some countries in the Middle East, including the UAE, the practise was banned until relatively recently.
Opinion has been divided as to whether organ donations from a deceased person is permissible in Islam.
The body is viewed as sacred, during and after death, thus prohibiting cremation and tattoos.
One school of thought viewed the removal of organs after death as equally impermissible.
That view has largely changed, and among scholars and indeed many in society, to be seen as permissible to save another life.
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In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
COMPANY%20PROFILE
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Jigra
Starring: Alia Bhatt, Vedang Raina, Manoj Pahwa, Harsh Singh
The specs
Engine: 3.9-litre twin-turbo V8
Power: 620hp from 5,750-7,500rpm
Torque: 760Nm from 3,000-5,750rpm
Transmission: Eight-speed dual-clutch auto
On sale: Now
Price: From Dh1.05 million ($286,000)
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
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Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
The%20Roundup
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Company%20Profile
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COMPANY%20PROFILE%20
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COMPANY%20PROFILE
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Key findings
- Over a period of seven years, a team of scientists analysed dietary data from 50,000 North American adults.
- Eating one or two meals a day was associated with a relative decrease in BMI, compared with three meals. Snacks count as a meal. Likewise, participants who ate more than three meals a day experienced an increase in BMI: the more meals a day, the greater the increase.
- People who ate breakfast experienced a relative decrease in their BMI compared with “breakfast-skippers”.
- Those who turned the eating day on its head to make breakfast the biggest meal of the day, did even better.
- But scrapping dinner altogether gave the best results. The study found that the BMI of subjects who had a long overnight fast (of 18 hours or more) decreased when compared even with those who had a medium overnight fast, of between 12 and 17 hours.
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
COMPANY%20PROFILE
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Western Region Asia Cup Qualifier
Results
UAE beat Saudi Arabia by 12 runs
Kuwait beat Iran by eight wickets
Oman beat Maldives by 10 wickets
Bahrain beat Qatar by six wickets
Semi-finals
UAE v Qatar
Bahrain v Kuwait
Tips for job-seekers
- Do not submit your application through the Easy Apply button on LinkedIn. Employers receive between 600 and 800 replies for each job advert on the platform. If you are the right fit for a job, connect to a relevant person in the company on LinkedIn and send them a direct message.
- Make sure you are an exact fit for the job advertised. If you are an HR manager with five years’ experience in retail and the job requires a similar candidate with five years’ experience in consumer, you should apply. But if you have no experience in HR, do not apply for the job.
David Mackenzie, founder of recruitment agency Mackenzie Jones Middle East
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Moon Music
Artist: Coldplay
Label: Parlophone/Atlantic
Number of tracks: 10
Rating: 3/5
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Company%20Profile
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Joker: Folie a Deux
Starring: Joaquin Phoenix, Lady Gaga, Brendan Gleeson
Director: Todd Phillips
Rating: 2/5
Lampedusa: Gateway to Europe
Pietro Bartolo and Lidia Tilotta
Quercus