Deutsche’s information pledge

I have written before in this column of my firm belief that world-class financial markets – such as the one Dubai is seeking to create, with some success, in the city – need one thing above all else to function: the free and unimpeded flow of information between corporates and investors.

Deutsche Bank’s recent announcement that it is to set up a state-of-the-art research facility in the Dubai International Financial Centre is, therefore, to be commended as a vital step in the process of communication between the two sides of the investment equation.

If it raises the standards for others to follow, it will be a crucial stage in the maturing of the Dubai markets.

Information really is the life-blood of investment decisions in the world’s great financial marketplaces like New York, London and Tokyo.

In London, (the market I know best after nearly three decades of writing about business and financial markets in the City) the process is so advanced that there is almost the risk of information overload.

All the big investment banks have teams of well-paid and well-resourced analysts; even the smaller stockbroking firms have their own specialist research analysts; newspapers, the broadcast media and – increasingly – the internet all have access to detailed corporate information.

There is a culture that places a premium on speed of response to developing corporate situations, and on accuracy of interpretation of events.

The corporates, for their part, accept the need for such transparency, and willingly take part in the process of information dissemination via their investor relations departments, press briefings and other media contacts.

There is a recognition on the part of the receivers of this information that, sometimes, confidentiality will preclude full disclosure, and this is accepted.

But, on the whole, the inclination is to tell too much, to provide too much detail, rather than too little.

Of course, mistakes and errors occur from time to time, but in a sophisticated financial market such as London investors soon learn which analysts and commentators to trust, and which to treat with caution.

The product is a free-flow of information that makes London the premier financial centre in the European time zone.

In Dubai, the information market is still at an early stage of development.
 
Certainly there are good analysts working to the highest standards, either attached to the big investment banks or acting more independently as niche research units within smaller organisations, who produce high-quality work.

If pressed, I would single out last week’s exhaustive analysis of Emaar by HSBC as an example of the standards that can be achieved in Dubai.

But there are many challenges still to overcome.

Analysts are reluctant to produce what could be perceived as “negative” coverage because they fear being frozen out of the information flow in future; corporates are more likely to talk freely to fund managers rather than analysts; the role of the press in helping transmit complicated financial information to a lay readership is still not widely understood.

The Deutsche Bank initiative, announced during the recent visit here by its Chairman Josef Ackermann, is, therefore, another significant advance.

The bank, which has been one of the pioneers of the DIFC “concept”, wants to expand from its current equities research team of three people in Dubai (by way of comparison, HSBC has 12 covering the region) and integrate UAE coverage of equities with the London and Frankfurt headquarters.

The aim is to throw further light on the value and risks of corporates doing business in the region, according to the highest standards of international best practice.

It is a laudable aim, and I will watch with great interest how it contributes to the ongoing development of the Dubai financial marketplace.