Investors' behavior will need to change to match the growing maturity of markets

It will compel investors to change the way they trade, according to top financial and brokerage experts at EFG-Hermes, the region's leading full-service investment bank.

According to Mustafa Abdel-Wadood, CEO of the UAE operations of EFG-Hermes, which boasts the longest brokerage track record in the region, the sheer number of privately owned companies intending to list their shares on the Gulf capital markets over the coming twelve months will give markets more depth and allow investors broader exposure for their portfolios. However, a more fundamentally driven approach will need to be adopted by investors hoping to enjoy continued positive returns.

Abdel-Wadood said: "The Gulf capital markets are opening up and are doing so at a fast pace. Such growth poses great opportunities for investors and brokerage firms, but also comes with challenges. These markets are currently driven by momentum trading, which is frequently not supported by fundamental research. This poses a risk if market trends begin to shift. With a deeper, more sophisticated capital market, investment decisions need to become fundamentally driven."

Although the UAE market currently lacks diversity, both in value terms and in terms of the number of actively traded companies, particularly compared to Egypt, EFG-Hermes' home market, 2005 is expected to see more than sixteen new Initial Public Offerings (IPOs) coming into the market.

Seif Fikry, Head of EFG-Hermes Brokerage UAE elaborated: "With the expected large number of upcoming IPOs, we will see a rapid deepening of local markets. However, we may also see downward pressure on valuations, compared to where they might have otherwise been, all other things being equal. This means that more mature, fundamentally driven brokerage services will become increasingly important."

Given its history in the Egyptian market, which since 1988 has seen four consecutive bear years, and a full market cycle, EFG-Hermes is confident that its expansion into the UAE will bring with it considerable expertise and experience, both at the brokerage level, and through its research, which is among the best regarded in the region.

Mustafa Abdel-Wadood said: "Having established our leadership in Egypt, the firm has made concerted efforts over the past two years to realise a truly regional vision, in order to be where our clients need us to be. We have been trading the UAE and other regional markets through third parties, but realised that we needed to bring our own backbone structure and our key research capability into these markets. We want to be a similar catalyst here as we were in the Egyptian market."

"EFG-Hermes decided that now was an opportune moment to enter the GCC markets, starting with the UAE. Over the last 12 months, trading on the Dubai Financial Market increased by 264%, and on the Abu Dhabi Securities Market by 182%. Over the last 2 years, the UAE index is up 304%, making it the best performing GCC market over that period, followed by Saudi (+290%), and Qatar (+260%)," he added.

Established in 1984, EFG-Hermes is the leading broker in the Egyptian market, by market share, reputation, and number of dedicated professionals. It boasts 33% market share in a market which has more than 130 brokerage houses trading over 800 listed companies, of which at least 100 are actively traded, and a client base which extends from Egypt, throughout the Arab region and into Europe, the UK and the United States. The firm began its UAE brokerage operations at the end of the 2004 with a 13-member team consisting of sales, dealing, operations and compliance professionals.

EFG-Hermes is the recipient of the Euromoney award for Best Equities House in Egypt for 2004, and was voted Best MENA Sales Team of 2001 by UK & US fund managers (Reuters Survey), and Best MENA Sales and Research in 2002 (US Institutional Investor Survey).