Share price anomalies in Emirates a hard puzzle to work out

Unusual movements in share prices have often been a feature of trading in the UAE

Abu Dhabi, UAE - November 12, 2008 - Traders on the floor of Abu Dhabi Securities Exchange while stock market plummets. (Nicole Hill / The National) *** Local Caption *** NH Stock01.jpgNH Stock01.jpg

The unusual trading activity in shares of Aldar and Sorouh before they announced plans to merge is just the latest in a series of odd market moves.

The Abu Dhabi Securities Exchange (ADX) said yesterday it would investigate trading in stock of two of the country's largest developers in the weeks leading up to Sunday's announcement that they were weighing up a US$15 billion (Dh55bn) merger.

Both developers gained 7.9 per cent to Dh1.24 per share the day before the stock exchange's disclosure. Share prices in both companies rose steadily since the start of the year, despite no specific announcements until this week. Aldar is up 45 per cent since January. Sorouh has risen 57 per cent over the same period.

Equally unusual share price rises occurred at Arabtec, a construction company, and at Tabreed, which operates district cooling systems. For Arabtec, Aldar and Sorouh the meteoric rise preceded market-moving news about the businesses. Any investigation would seek to explain the sharp rises. For their part, the companies revealed the news on the relevant exchange and in accordance with market disclosure rules and there is no suggestion they have done anything wrong.

A scramble for shares in Arabtec, the biggest construction company in the country, sent its stock price soaring this year despite its weak underlying performance.

It reported a 15 per cent drop in annual profits for last year, with net income down to Dh260.5 million from Dh307m in the previous year.

Most of this was known by the market when, on March 5, Aabar Investments, a sovereign investment company, announced it had bought a 5.8 per cent stake in Arabtec. Prior to that, however, Arabtec's share price had risen from Dh1.56 on January 2 to Dh3.53 on the first trading day after the news, up 122 per cent.

Ziad Makhzoumi, the chief financial officer at Arabtec Holding, told a meeting of analysts the stock price rise had been led by higher volumes and speculation. "There is interest in the stock based on speculation and in my view a lot of it has to do with irresponsible statements by analysts. Small shareholders who may not understand financial statements and rely on rumours and decide to buy. Statements saying Aabar may want to buy more than a 5 per cent stake is very dangerous as that could have a massive reaction from shareholders."

After the stake buying announcement Arabtec shares plunged, but are still up 84.9 per cent in the year to date. Tabreed is another anomaly. Its stock has risen 206.4 per cent since January, from 0.5 fils at the start of the year to close at Dh1.52 yesterday. No public announcements about the business have accompanied the rise, leading analysts to question what is sending a stock many believe is overvalued soaring higher.

"Tabreed is a listed company … if it had any material disclosures to make it would make them to the market. What's driving the share price is market forces," a Tabreed spokesperson said.