UAE Banker Warns Against Herd Mentality In Local Stock Markets

by Carla Johnson, Investors Offshore.com

03 August 2005

Many small investors in the equity markets of the United Arab Emirates risk losing their investments because they are placing too much emphasis on making short term profits, according to a senior UAE-based investment banker.

With the UAE share price index having grown by 400% over the last two years and the economy experiencing high levels of economic growth, Nabeel Waheed, chairman of Makaseb Funds Company BSC (MFC), believes that too many small investors are getting carried away and jumping onto a trend that is ultimately going to be difficult to sustain.

"Unfortunately, inexperienced short-term investors looking for quick returns are the ones who suffer most when there is a quick downturn. It is important for investors to have a long-term perspective when investing in equities," Waheed stated in a Gulf News report.

Mr Waheed advises smaller, inexperienced investors that portfolio diversification to spread investment risk is the best course of action, rather than betting heavily on one particular investment.

"Although the economy is healthy, people must realise that share prices are also influenced by market fundamentals and do not exist in a vacuum. Some shares, which have done well in the past, now command unrealistically high P/E (price-to-earnings) ratios that are higher than the P-E ratios of many international blue chip companies," he observed.

"In this situation, investors must carefully examine the short-term potential returns and focus more on the long term investment horizon," Mr Waheed noted.

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