The United Arab Emirates and Saudi Arabia’s equity capital markets have emerged this year as an oasis of stability in an otherwise barren desert of an IPO market caught in a sandstorm of rampant inflation, rising rates and the war in Ukraine.
Following Russia’s defenestration from MSCI’s flagship global emerging market indices in March, both the UAE and Saudi Arabia have grabbed the mantel of being two of the best reflation trades in the EM universe, alongside commodity-rich Indonesia. With a stable political outlook, and their oil wealth, money has flowed into the Gulf states’ equity markets, and the IPO pipeline in the region is stacked.
However, it would be wise for investors to remember that the UAE and Saudi Arabia are not immune from the headwinds facing the global economy, and that while commendable progress has been made in liberalising the local stock markets, headaches and teething problems remain. Liquidity, particularly in the UAE, remains thin, and there are still peculiar features of the IPO market in the region that make life difficult for international investors, such as the absence of greenshoes and the ultra-long settlement periods between pricing and trading.
This week, Tecom, the Dubai developer of business parks, flopped after the company began trading in Dubai, losing about 10% of its value on the first day of trading.
The IPO was priced a week and a half earlier, with a big book of demand, and big commitments from anchor investors. Yet it still traded down, proving that not every deal in the region will work.
While the Middle Eastern IPO wave is expected to power on, Tecom’s disappointing debut may prompt investors to think twice about buying in.