Returns on stock sold in UAE initial public offerings have tumbled since 2005 and the longer investors hold their shares, the more likely they are to lose money, an Abu Dhabi-based investment bank said.

The best time to sell shares in IPOs is the first day of trading, the National Investor said in a note based on a study of all UAE offerings since 1995.

In the past 12 years investors made an average return of 366 per cent if they bailed out on the first day of trading. People who bought shares in Finance House and sold as soon as trading began made a return of 1500 per cent.

By contrast, the shares of Gulf Navigation Holding rose only 20 per cent on its first day of trading in 2006 after stock markets in the UAE had tumbled to near two-year lows.

 'As a matter of fact the potential capital gains from IPOs have decreased to the point of making them dangerous. Any leveraged investment today runs the risk of making investors lose money,' The National Investor said.

Many investors lost money on the Dubai Financial Market's initial public offering as the stock hit a record low of Dh1.89 ($0.515) eight days after listing. 

The shares were sold at Dh1 each, although many investors borrowed to buy shares. With financing charges added on each share would have cost Dh2.48, The National Investor said.

'Wealth is being transferred away from the issuing corporation and subscribers, to the banks,' the note said, adding that UAE bank were allowing investors to borrow as much as Dh99 for every 1 dirham they invested in an IPO.

UAE banks earned interest revenues of up to Dh975 million in one month from Dubai Financial Market's share sale alone, The National Investor said.

Investors who hold on to IPO shares long after listing risk faring much worse than the market benchmark, the note said.

Shares from IPOs had underperformed the market by an average of 3.6 per cent after three months of trading, 21.4 per cent six months later and 49.1 per cent a year on, the note said.  Reuters