The Shuaa UAE index rose by 2 per cent in the week to 29 March, but remains down by almost 20 per cent since the start of the year. The slump was initially prompted by disappointing full-year results from Dubai-based developer Emaar Properties and was followed by a haemorrhaging of secondary market liquidity due to the initial public offerings (IPOs) of home finance company Tamweel and new telecoms operator du. The authorities have moved swiftly to mitigate the phenomenon, by ordering the return of surplus funds within two weeks of an IPO's closure.

'The announcement is very welcome,' says Mohammed Ali Yasin, managing director of Emirates Securities. 'In the past it has taken up to six weeks for investors to get their money back, which has been one of the key factors killing the market.'

Calls for further, more radical, regulatory change are growing, however. Many market-watchers would like to see the obligation that companies offer 55 per cent of their shares during an IPO scrapped and the pro-rata allocation policy changed.

The market regulator, the Securities & Commodities Authority (SCA), has acknowledged the role of unsequenced IPOs and rights issues in increasing volatility on the exchanges. Dubai Islamic Bank was instructed in mid-March to delay its planned rights issue, while several IPOs have been postponed for the time being, according to SCA chief executive officer Abdulla Alturifi. Analysts also expect that investors across the region will become choosier in the primary market, confronted with a growing flood of IPOs and gradually becoming aware of the fact that not all are destined to fly after listing.

'The correction is welcome,' says one analyst. 'It will teach investors who think that they don't even have to read the prospectus and expect shares bought during an IPO to trade at 500 times their issue price on the first day.' Investors so far appear undeterred, with both the Tamweel and du IPOs many times oversubscribed.

While the Dubai Financial Market and the Abu Dhabi Securities Market are currently in recovery mode, trouble could lie ahead, with the reporting season looming. 'I think first-quarter corporate earnings are likely to have a negative effect on the market,' says Joe Kawkabani, fund manager at Dubai-based Shuaa Capital. 'You are likely to see falls in earnings growth in many sectors - insurance, cement and banks, for example.' The advice of analysts is two-fold: first, to go for the blue-chips ahead of speculative stocks; second, more pessimistically, to pick companies without a high level of dependence on stock market income.