Tiny trades wreak havoc on stock markets

The illiquidity of the country's stock exchanges is just one reason for an increasing estrangement between investors and the public companies they once loved, Sean Cronin reports.

Emirates NBD - National Bank of Dubai branch on Jumeira Beach Road. (Jaime Puebla - The National Newspaper)

The value of Taqa, the Abu Dhabi energy giant, plunged by nearly $70m as a result of a single sale of 125 shares. This is just one issue of concern in the stock markets, where there is a widening gulf between investors and companies, Sean Cronin writes

A quarter of a billion dirhams (US$68 million) was wiped from the share price of Abu Dhabi National Energy Company (Taqa) on May 13.

What kind of calamity befell the multibillion-dollar international energy giant to have moved the market in this way? Disastrous results? Exploding oil rigs? Boardroom reshuffles? It was none of the above.

Instead, somebody sold 125 shares worth just Dh150 and sent the stock tumbling 3.3 per cent. That sliced about Dh250m from its market capitalisation in a keystroke.

You don't need to be Gordon Gekko to launch an attack on a publicly traded company in the Emirates these days. It can be done for less than the cost of a tank of petrol.

"It does not make sense," says Tariq Qaqish, the deputy head of asset management at Al Mal Capital. He believes tiny trades such as these should be discounted from the calculation of stock price movements to prevent such distortions from occurring on markets starved of liquidity.

"We have raised an issue over small trades creating big swings in stock prices and recommended that lots of below Dh15,000 over the day should not reflect the movement in a stock price," he says.

The Securities and Commodities Authority did not comment.

But the illiquidity of the country's stock exchanges is just one reason for an increasing estrangement between investors and the public companies they once loved.

As more brokerages are wound up and an exodus of analysts leaves stocks uncovered, investors are feeling increasingly disconnected from the running of public companies and struggling in a vacuum of corporate governance.

In Europe, the "shareholder spring" has dominated the financial pages in recent weeks as runaway pay for chief executives has caused investors to revolt as the heads of companies including Aviva, an insurance giant, and Trinity Mirror, a media group, ended up on the chopping block.

But in the Gulf it is information - or the lack of it - rather than remuneration that is angering shareholders.

Unlike their counterparts in Europe, they can do little about it, with the boards of many government-backed companies with a free float often perceived to be more powerful than the regulators that are supposed to police them.

The relationship between companies and their stockholders is becoming more strained as complaints about disclosure and governance resurface - making the small investor feel increasingly out of the loop. The timing could not be worse.

The MSCI Global Index provider will deliver its end-of-term report on the UAE bourses in just a few weeks The prize is inclusion in the MSCI Emerging Markets Index that would potentially put some fresh wind in the sails of both bourses by opening them up to a much larger pool of overseas institutional investors.

Last year, the UAE missed out on gaining emerging-market status, along with Qatar - even though the MSCI did note positive developments in both markets.

But a series of disclosure controversies affecting government-backed, publicly traded companies in the Emirates have rattled investors and may not advance the country's cause with MSCI. The fledgling Financial Services Association this week called for an overhaul of market rules to ensure that institutional investors were not scared away. The call coincided with the announcement of plans to create a new agency to oversee financial services in the country.

The latest investor relations debacle has emerged from the acquisition of Dubai-listed Arabtec stock by Aabar, a group based in Abu Dhabi with a global investment portfolio.

Contradictory media reports emerged about Aabar's stake in the builder that led to wild swings in Arabtec's share price as investors tried to figure out if a full bid for the company was likely.

The guessing game triggered renewed calls by investors and politicians for tougher rules relating to company disclosure.

"We would like to see regulators be more proactive in dealing with scenarios that affect investors' appetite for the UAE's capital markets," says Mr Qaqish. "There have been many issues such as the delisting of Aabar … that raised concerns to the investment community. Investors did not have insights into how those matters would be treated in terms of process and time frame and how minority interests are affected."

Companies have also become victims of the malaise affecting local markets and investors, as the case of Taqa illustrates. Employing 2,800 people worldwide with annual sales that run to billions of dirhams, it has become a global name in the oil and gas industry.

Yet its peers in Europe and North America would struggle to believe that its stock could move on a $40 trade - much less that it would wipe almost $70m from the company's value in a single session. The ownership structure of the company means that only a comparatively small proportion of the Taqa shares are available for trade.

More than 72 per cent is held by just two investors - Abu Dhabi Water and Electricity Authority and the government-affiliated Farmers' Fund. Only 27.5 per cent of the company is available to trade on the Abu Dhabi Securities Exchange and these shares can be bought and sold only by Emiratis.

Other UAE-listed companies share a similar structure and so their prices are easily held to ransom by inconsequential trades. And, as more brokerages go out of business and research teams covering local equities are wound up, companies such as Taqa find themselves further on the fringe of the investor universe.

"It is an issue facing all the companies here," says Mohammed Mubaideen, an investor relations manager at Taqa. "Everyday we're hearing about another analyst that has left the region. There is not enough coverage and that is a concern."

Next month the market will discover whether it is also a concern for the people at MSCI when they decide whether the UAE's stock exchanges have done enough to be included in the club of emerging markets.

Not many investors will be holding their breath.

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