I know this is a blog about Canadian penny stocks, but I thought I would expand the field a bit and add a post about stocks in Dubai

Dubai Penny Stocks in Decline

With 2012 still only in the first quarter, Dubai penny stocks have already seen a fair share of highs and lows. As of March 8, 2012, these small-company stocks have started their latest decline. Some experts believe that the drop will not be as sharp as the previous decline this year. Instead, it is expected that Dubai’s penny stock market will devalue slowly but recover later in the year.

In January, Dubai’s Financial Market General Index, which includes penny stocks, fell to its lowest point in seven years. The decline was based on rumors that when year-end earnings were finally calculated, they would fall drastically short of previous expectations.

Dubai penny stocks, however, quickly recovered, and they have experienced the largest gains so far in 2012. The rest of the Dubai stock index also rallied, and it is currently around 30 percent higher than the year’s low. As the general index picked up, positive investor sentiment in penny stocks overtook the market as a whole.

Now, it appears as though Dubai penny stocks have hit their peak, especially when it comes to retail-favored penny stocks. A representative from EFG-Hermes, one of the leading investment banks in the Arab world, stated that such stocks are “at a risk of sharp correction” as the momentum begins to subside.

The stocks that have risen the highest since the beginning of the year are those that started the year with a price below one dirham, and the second highest rise was by stocks that were valued between one and two dirham. Stocks valued at more than two dirham rose at levels that were comparative to the stock index.

An investment manager at The National Investor in Abu Dhabi, Sebastien Henin went on record as saying that the Dubai penny stock market is in an extremely volatile position. “You can’t have small companies up 100 percent in just a few weeks,” Henin said. According to Henin, the reason for the current decline in penny stocks is that the rise was purely based on speculation, and no underlying fundamentals exist to support the stocks at their previous levels.

EFG-Hermes believes that the decline in penny stocks will not have a drastic effect on the market, but they expect that, overall, the index will decline by 5 to 10 percent. The investment bank is also optimistic about the future. One representative said that those who were late in investing this year have missed a big opportunity, but other opportunities will be presented later in the year.
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