It's July 28th 2010. As I type this first blog entry the GCC equity markets are entrenched in a seemingly never ending bear market. The heady bull market days when stock prices would regularly double, even triple, in a matter of weeks are but a distant memory.
The DFM General Index is currently down 82% from its 2005 all time high and is now hovering precariously above its bear market low of 1433, a level first seen over six years ago in June 2004. The Abu Dhabi Index has also fallen significantly from its all time high set in 2005, down nearly 60%. And with these index declines trading activity has also fallen. Volume on both the DFM and ADX are currently at levels not seen in many years.
Other GCC equity markets have not fared any better. The Saudi Tadawul Index has fallen 70% whilst the Kuwaiti market is down 57%.
Well, it's true that the current environment is not one of joy and optimism. Across the region stock prices are falling, trading volumes have all but dried-up, brokerages are closing or suspending operations and asset managers are finding it increasingly difficult raise and retain funds. Things are bad. However, I think there is an opportunity in this unfolding crisis.
During the bull market days, especially in 2004 and 2005, everyone was a successful trader. If you were active in the GCC equity markets during this period you made money and most likely lots of money. But, for the vast majority (and I'm referring to both retail and institutional investors here), this success was merely an illusion brought about by the strength of the bull market rather than any skill in predicting future equity prices.
The aphorism "a rising tide lifts all boats" describes what was happening. What was the point of market analysis during this period? Just buy a stock, any stock, and enjoy the profits as it inevitably shot up in value. Who needed complex valuation models or in-depth macro economic analysis in such an environment? And, to be fair, this was true. Most reasoned analysis would have been telling you to get out of the market a long time before they actually peaked - and who wanted to be on the sidelines whilst everyone else was coining it in?
Things are different now of course. The party is over and the last four years have seen lots of people lose lots of money. The good news, however, is that I believe we are now in an environment in which people will be a lot more receptive to the idea of market analysis - bear markets tend to do this to people. So, this is main reason for starting this blog. I think it's an opportune time to introduce some novel, useful and hopefully interesting analysis and research focused primarily on the GCC equity markets.
In particular, this blog will be focused upon developing market analysis which can provide an '"edge" in determining the future direction of stock prices. In doing this the emphasis will be on testing and validation.
Log on to the internet, turn on the TV or open a newspaper and you will find no shortage of opinion about a company's stock price, the price of oil or the state of the economy. What you probably won't get, however, is an opinion that is backed up with data that is the result of objective and rigorous testing. For example, a favourite with analysts and the media is the idea that oil prices have a big influence on future equity prices in the region. Sounds logical given that oil revenues account for a significant proportion of the GDP in GCC countries. However, what sounds logical isn't necessarily correct when it comes to financial markets and stock prices. Some relatively simple correlation studies could go along way to determining the relationship, if any, between regional stocks and oil. But you rarely, if ever, here analysts or journalists refer to such studies when making claims about the effects of oil prices on GCC stock markets.
I want this blog to be different. In fact, I want the focus on testing and validation to be a key differentiating characteristic of this blog.
Finally, a personal motivation for starting this blog is provide me with the impetus to formalise my vast amounts of research and analysis into a more coherent and useful form. I have lots and lots of half finished or nearly finished studies but I all to often lack the focus to complete them. My hope is that this blog will compel to me finish these studies to that I can't present them on this blog.
OK. that's about if for my first post. I'm aiming to post quite regularly in the coming weeks so be sure to visit frequently or subscribe to the RSS feed in the right-hand sidebar. I have no grand plan in terms of content at present so initially things might be a little haphazard in terms of topics covered. However, I'm hopeful that some consistency will be established once the blog finds it feet.
Enjoy.
