As with trading stocks in any market, the first thing to do is have at least a basic knowledge of the local economy. You wouldn’t buy a car without knowing a thing or two about its engine or gearbox, and it’s the same with buying shares. Whilst stock markets around the world are similar to each other to a certain degree, there are discrepancies that you need to be aware of.
The UAE is ranked as a frontier market by the MSCI — one of the bodies that measure the performance of global markets. In the ‘frontier bracket’ regulation is weaker and the market is more susceptible to violent swings – in other words, greater risk.
The UAE has tried, unsuccessfully so far, to win promotion to the emerging markets category, which for years now may have kept international investors at bay. It’s worth keeping an eye on the next MSCI’s report as it is predicted that the next category up will bring an influx of billions of dollars worth of investment.
Keep yourself up-to-date with the latest business and financial news. If you have an interest in a particular sector or business then take the time to learn about the company or the industry it is in. If you’re thinking of buying shares in a bank then try to understand the local finance industry, how it has performed, what economists are predicting and what movements or announcements have recently been made.
Look at the country’s high-market capitalisation companies, like Emaar or Air Arabia. Read their financial reports for at least the last two years. All listed companies have to issue financial reports with details of their various profits, incomes and revenues, which will often compare with the same period the previous year.
When it comes to buying the shares, it is best to open an account with a local broker. A UAE-based financial services company will give you access to the market, local knowledge and a greater understanding of the process from buying shares to selling them for profit.
Some companies will let you buy stock direct from them in what is called direct stock purchase plans. Contact the company you want to buy shares in and find out if they offer the direct service. Be sure to request a copy of their prospectus and other relevant information as part of your research into the company.
The next option is to use an online discount broker. This is effectively a website or brokerage firm that allows you to buy and sell shares as you see fit. The service comes with minimal fees — if any at all — but in return there is no real advice or direction offered. The broker will take a small slice of your transactions.
You can also use a full service broker. This option offers greater investment advice as well as research tools but in return charges higher fees. These brokers frequently earn their keep on a commission basis, so bear that in mind when they’re encouraging you to trade as frequently as possible.