The long-predicted correction in the Gulf's financial markets brought Abu Dhabi's exchange to an 11-month low earlier this month. While the indexes did perk up again after news of tighter government regulations, trading remained low as the week closed.
With market capitalisation stretched and analysts warning that many shares were overvalued, the Gulf's markets had become some of the most expensive amongst the world's developing economies.
Investors in these markets have also been eagerly awaiting a string of initial public offerings (IPOs). In order to buy into these, many had begun a round of selling in order to raise extra liquidity. Further straining the markets has been the fact that money from previous IPOs, such as that of mortgage-lender Tamweel, has not yet been returned to investors.
Many analysts predict that the decline has not finished, and will likely continue for about three more weeks. By that time, money from other IPOs should be returned to investors and buoy liquidity once again on the bourse.
Yet, after hitting an 11-month low early March, stocks recovered on the Abu Dhabi Securities Market (ADSM) on March 16, with the Abu Dhabi index up 3% on the previous day. Many put this recovery down to a government announcement that it would begin regulating IPOs and raise the ceiling for bank loans against shares in order to boost liquidity and reduce the volume of selling.
Indeed, governments across the region pledged in the past week to intervene directly, improve regulations or even support prices. But it remains unclear how much the UAE authorities will intervene and to what extent - and thus investors remain wary.
As this week's trading ended on March 23, the Abu Dhabi market closed 0.17% down, with 23 losers, 15 gainers and 3 stable. Up the road in Dubai, a similar lacklustre week ended with the Dubai Financial Market down around 1%.
The decline comes after a period of stellar growth. In 2005, the UAE market gained 79.8% on the National Bank of Abu Dhabi (NBAD) index, which hit a record high in that year due to high oil prices, good macroeconomic parameters, the promotion of the non-oil sector, positive business and consumer confidence, and high liquidity.
The ADSM became the second-largest market in the region after Saudi Arabia. The UAE markets in particular attracted Saudi Arabian and Kuwaiti investors. The country led the region in terms of fund raising through IPOs.
The NBAD index peaked in November, however, and began to decline through December and into February 2006.
In preparation for floating shares on the market in the past week, the NBAD launched a Dh2.5bn ($680.8m), 10-year subordinated convertible note issue. The notes were privately placed to individual and corporate investors both locally and internationally, and were fully subscribed. They will also be listed shortly on the ADSM, according to the Khaleej Times, to enhance the bank's liquidity.
The issue will be the first local currency subordinated capital note, and the first broadly distributed convertible on the ADSM.
While analysts have voiced concern over the risk of a market crash after the enormous expansion of the ADSM and other markets in the region over the past year, many see the present episode as merely a correction, and that though investor confidence was shaken, it seems to have stabilised as governments promised to protect the markets and it became clear that many were selling simply to release funds to participate in new IPOs.
Indeed, the basic financials of the market and of the companies that have been hit by falling share prices remain sound - backed up by high oil prices and generally confident investment portfolios.
Some of the IPO money is expected to start returning soon too, with next week's trading likely to see the effect of the aftermath of the Emirates Integrated Telecommunications Company (EITC) IPO. This was 167 times oversubscribed, with a surplus of more than Dh400bn ($109bn) likely to return to the markets.
Yet how government intervention in the form of more regulation on IPOs will play out in the next period is the question many analysts are now asking, with particular interest in whether this may mark the beginning of more tempered trading on the bourse, after last year's wildly oversubscribed IPOs.