Manipulating the market

The story of Emaar and the huge Saudi contract is going to be with us for a while because the UAE's stock market regulator has told the DFM to demand a full explanation.

On Saturday it was announced by Kingdom Holdings that they had selected Emaar to be in charge of developing and supervising construction of Kingdom City, to include the world's tallest tower at over one kilometre, a project worth a total of $26.7 billion.

Not surprisingly, Emaar's shares jumped over 7% on the news.

Emaar subsequently denied the reports and naturally their shares tumbled, by 5.74%

Let me digress. It's one of the absurdities of stock markets, that share prices can be, and are, manipulated by interested parties. They rise and fall on any or no news.

Most often there's no news, no change in anything whatsoever as far as the company and its operation is concerned, yet the shares go up and down all day. The shares are simply bought and sold as a commodity in their own right.

Mrs Seabee spent a while day trading on the Sydney Stock Exchange. Very often she would buy and sell shares in the same company several times in a day and bank considerable profits at the end of the day. None of the rises and falls were based on news from or about the company, simply on the sale or purchase of the shares.

Just imagine you're in charge of one of the pension funds with billions of dollars at your disposal. You sell a very large block of shares in a company, other investors see the trade, think something's up and sell too. The share price drops...at which point the pension fund buys back its big block of shares at the new lower price. It still has its original share holding plus a profit on the trade.

I'm not saying that's what happened with the Kingdom/Emaar events but it would be interesting for DFM to check into share trading between the announcements.


Kingdom Holdings says...
Emaar says...