Suresh Kumar

'We have not seen the extremely high price-to-earnings ratios and low dividend yields prevalent in the Saudi, Kuwaiti and some international bourses. So I think we are unlikely to see much greater volatility in the UAE.

'Here the earnings growth among companies is very high and is matching the price appreciation in the stock market. The UAE market is split into Blue Chips and the new companies formed through IPOs, and there are trade plays where the prices change in day-to-day trading.

'We have seen increased trading activity this year, and so our fund has also had to become much more active. We also hold the Blue Chip stocks to underpin the portfolio of $89 million. By 'seeding' other funds and portfolios, EFF has become a Fund of Funds.'

What about the downturn in the Etisalat share price since the loss of its monopoly? Is this something shareholders should be concerned about?

'Etisalat should recover as it has created a fantastic product which will be very difficult for a newcomer to compete with; except in the mobile segment,' says Mr. Kumar. 'They are also bidding for the second mobile license in Saudi Arabia and are very liquid and heavily invested in infrastructure.'

OK, so Etisalat will recover. Will we now see a large number of IPOs in the UAE? And why have IPOs been so oversubscribed? Are they being priced in the wrong way?

'I can see a few more IPOs in the pipeline. But the whole process needs to be looked at. Policies need to be amended. For example, should family groups have to bring 45-55% of their shares to the market, why not 20%?

'There are several reasons why IPOs are oversubscribed. First, people have a strong view that post-IPO prices will rise. Secondly, many banks allow leverage as a one-way bet. Thirdly, there are few IPOs to go for, and finally there is plenty of liquidity in the market.

'On valuations the market needs to be allowed to find its own level, share prices should not be set by a committee. Of course, there needs to be protection for investors and that can be left as key accountabilities to the professionals and institutions.'

Over the past year the Emirates Flagship Fund, the largest mutual fund in the UAE, has risen by 24%, inclusive of stock dividends, and has continued to benefit from a local aversion to investing in global equities.

'There used to be a flood of funds going into global equities, now that is a trickle,' says Mr. Kumar. 'This leaves local and global bonds and real estate as our major competitors. But investors should remember that expanding infrastructure and real estate activity is also very good for local companies and their share prices.'

On the whole Mr. Kumar is impressed with the way the UAE economy and its bourse are developing, and applauds the proactive role played by authorities, leading to cancellation of some share trade transactions in Dubai Islamic Bank on May 15 due to suspected 'privileged information'.

These still seem like good times for the Emirates Flagship Fund with plenty of room for further growth.