DIFX suffers in the wake of the DFM crash

It has to be said that the DIFX has done well to survive through what any new stock exchange would describe as a nightmare first year. And yes the promises of 15 initial public offerings have proven hot air amid the carnage wrought by the collapse of the local Dubai Financial Market.

The DFM came off 70 per cent from its high last November to perk up by 20 per cent in late August and early September, only to drop back again at the time of writing this article. It was a part of the wider collapse of all Arabian stock markets within the same timeframe, albeit the biggest loser in percentage terms.

What a terrible background to launch a new stock exchange like the DIFX. Only Kingdom Hotel Investments managed a primary share issue in Dubai, the five others have been secondary listings and the first one, Investcom, has already de-listed due to being acquired.

Trading volumes low

Not surprisingly very few shares presently change hands on the DIFX. For there are not many shares available to trade - and most of them can be easily electronically traded on another platform. Yet there is still reason to be optimistic about the outlook.

First, things can not get much worse, and that is usually a good point for a stock market to rally. The dark comes before the dawn. Indeed, the initial problem for the DIFX was that the DFM had done too well, and that issue has been fully addressed.

Secondly, Dubai has a long history of sticking with projects through thick and thin, and the government is not likely to give up on the DIFX. But the authorities will want to see at least a window of opportunity before acting, and certainly the DFM will need to have bottomed out.

Still a good idea

Thirdly, a regional stock market, organized to international standards, for large IPOs is still a great idea and should attract considerable investment interest once it is operating effectively. There is also a wall of oil-fuelled liquidity in the region right now. And Dubai has a number of entities ripe for privatization, or partial sale on the DIFX.

It will be interesting to see, for example, whether Dubai Ports World has a DIFX cross-listing if its plans to float in London come off this autumn. And one sure-fire hit would be a DIFX share sale for Emirates Airline, or some divisions of Dubai Holding.

So don't give up on the DIFX just yet. Stock markets usually hit rock bottom in their fortunes immediately prior to what proves to be a strong bull run. With the liquidity of the third great oil boom still to call on, the DIFX will have its day.