Amlak IPO signals UAE trend

So far the Emnex index is up 2.8% this year and has broken through the psychologically important 3,000 point barrier. With top regional economist Henry T. Azzam forecasting 4% real GDP growth for 2004 in the UAE, investors' eyes are increasingly turning to the undervalued local stock market.

In Dubai, Emirates Building Systems Company, Dubai Investments Park Development Company and M'Sharie have already been shortlisted for IPOs this year. In Abu Dhabi, where the local trading floor is more active than Dubai, IPOs also look likely during 2004.

Analysts think the UAE bourse is now set on a two to three year rising trend. The sheer volume and cash requirements of new projects in the UAE - from real estate to tourism and infrastructure - mean that the local bourse will increasingly be seen as a good source of cheap capital.

Take the Amlak Finance flotation. Raising money on the Dubai Financial Market will provide capital to lend for mortgages to buy real estate, some of it from parent group Emaar Properties. This means that Emaar will be free to invest its cash in other projects while benefiting from the income from new mortgage payments and higher property sales.

This sort of virtuous cycle of raising funds to power investment has only really just started in the UAE, and has a long way to go before it comes anything close to the level that an economy of this type should enjoy.

The launching of IPOs also brings money and life into a local stock market. IPOs create publicity and hype. It may be that IPOs are the necessary development that will boost the whole UAE stock market whose price-to-earnings ratio is still around half the level seen in the last market peak in 1998.