There have been two questions on the lips of all the financial professionals I’ve talked to in the past week: Are global markets on the verge of a crash? And what would that mean for the wave of initial public offerings on the slipways in the UAE?
On Monday, the first question seemed to be answered. “The sky is falling” was the comment of one trader as reports came flooding in of “panic” selling on UAE markets.
Really? The Dubai Financial Market lost about 6.5 per cent in a day and has been volatile in the couple of days since, but I’d question whether this the financial equivalent of the heavens descending.
Let’s get a bit of perspective on this. In 1987, shares around the world collapsed 20 per cent in just two days in a whirlwind of chaos; in 2000, the dot-com bubble burst, leading to a prolonged period of bloody, daily attrition on global markets; in 2008, the international financial system came within a hair’s breadth of disintegration as huge banks went bust overnight.
These were market crashes. In comparison, this week’s relatively modest declines in UAE markets are mere corrections, mild even by historical UAE standards, for anybody who remembers the crash of 2005.
So for regional markets, I don’t think the next great crash is going to happen any time soon. Of course, all booms end in downturns at some stage.
It is true also that regional markets do not exist forever in an oasis of tranquillity if the world about them is collapsing. But I would also question whether that is happening at the moment.
What seems to have prompted the recent bouts of volatility in global markets was the statement last week from the IMF that cast doubts on its own forecasts for global growth.
When will the IMF get it consistently right, instead of having to revise and downgrade overly optimistic forecasts?
The United States was doing relatively well, was the message, with the world’s biggest economy steadily growing at about 2.2 per cent. Nowhere near pre-2008 levels of course, but respectable in the circumstances.
There were recurring concerns about China, challenging the US as top economic power, but with 6 to 7 per cent plus on the cards for GDP growth this year, the Chinese seem to be doing their bit.
Other putative “engines” of expansion are not, however. Japan, Russia, Brazil are all laggards for a variety of reasons, some of them little to do with basic economics.
The biggest global culprit is Europe, where the effects of the euro-zone crisis seem impossible to shake off – especially in Germany, where policymakers are apparently locked in a phase of hesitancy and economic orthodoxy. German indecisiveness is clearly holding back a stronger European recovery.
The background of geopolitical crises – in Syria and Iraq, in West Africa, in Ukraine and possibly in Hong Kong – does nothing to help the mood music.
But if you are a corporate executive or an adviser sitting in the Dubai International Financial Centre or around the Abu Dhabi Securities Exchange, contemplating an IPO, does all this matter?
You will probably be keeping an eye on the falling oil price, which is of course the heartbeat of financial business in the region. And you’ll also be closely watching events in the north, but are you less likely to go for a planned stock market listing because of global economic concerns?
It depends. If you are contemplating an Emaar Malls-style offering, with full global exposure in the hope of attracting hordes of new international investors, you’ll probably be more aware of the global concerns, and looking for a window of tranquillity to get the IPO away.
If, on the other hand, you are a another “greenfield” IPO, or an established business based and focused on the region, it will probably have little bearing on your decision whether is to come to market.
Regional markets are still strong, the financial system is stable and remains among the best-capitalised in the world and GCC investors (not least in Saudi Arabia) have shown they are persuaded on the benefits of public market status.
It is certainly not time to shelve all those IPO plans. But judgment calls will have to be very minutely assessed.
fkane@thenational.ae