The first day of trading for the newly listed Emaar Malls Group saw a comfortable 11 per cent pop in its stock price but shares in parent group Emaar Properties fell by 4.3 per cent wiping $1 billion off its market capitalization, though not quite cancelling out the $1.6 billion raised by the IPO.
Clearly the market is working this arbitrage correctly. Emaar Properties is now worth less than it was before the sale of 15 per cent of EMG in the IPO.
However, the leading Dubai property developer does have now have $1.6 billion in cash from the IPO though it has promised to return this to shareholders, including the Dubai Government with almost a third of its stock. In terms of extracting money for payment to shareholders the IPO is a success.
We will have to wait until after the four-day long weekend of Eid Al Adha to find out what happens next for the Dubai Financial Market and EMG shares post-IPO. Thursday was not a good day for the market which fell 1.7 per cent to close below 5,000 points.
The global backdrop for the DFM was poor with big falls on Wall Street the day before. Traders hope that some of the $80 billion pledged in the EMG IPO and now due to be refunded to would-be investors will come back into the DFM.
That’s by no means guaranteed. The IPO could mark a double-top for Dubai stocks as this website has previously suggested (click here), especially if global markets provide some nasty tailwinds during the often volatile month of October. Many analysts are turning bearish.
There is now quite a widespread questioning of the reality of the presumed global economic recovery led by the United States. As strong dollar hails tightening of global liquidity and this is not usually a good thing for equity markets.
The DFM looks particularly overbought as one of the best performing stock markets in the world, up 50 per cent year-to-date, and could well be heading for a fall.
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