Exchange of Choice

Etisalat recently offered shares to foreign investors that were well received by the market. How will this and similar offerings develop the ADX?

Etisalat is a multinational company that is highly sought after by both local and international investors. However, its Articles of Association did not allow for foreign ownership. As such, we worked with the management of Etisalat to illustrate the added value and benefits of foreign investment in the company, be it shareholding, management, or even ownership. Based on the correlation between foreign ownership and turnover, Etisalat can expect higher turnover, and even possibly blue chip status, through opening up the company to institutional investors. That in turn will have a positive impact on the market, which we have started seeing. We hope other companies will follow Etisalat’s example. One of our strategies is to increase liquidity, which is certainly a step in the right direction, not just for Etisalat and ADX, but also for companies not listed on ADX.

How resilient has the ADX been to external factors such as the devaluation of the yuan and chronically low oil prices?

We are part of the international financial community and are affected by what goes on in other parts of the globe, positive or negative. When things go bad, we are impacted, unlike before when we sealed ourselves off from the global market. Today, the ADX is part of the MSCI and the S&P Dow Jones emerging market index. The UAE works hard to diversify away from oil, although it remains important to our country and the economy. In real terms, non-oil activities accounted for 50.2% of Abu Dhabi’s GDP at constant prices in 2014. Real estate activity also accounted for 20.7% of gross fixed capital formation in 2014, with the sector having grown by more than 22% during the year. The financial and insurance sector was second, with growth last year of nearly 20%. Diversification is an important issue for our country, and there are many serious strategic investments in renewable energy sources in the UAE, including, nuclear, wind, and solar.

How will the Fed’s impending rate hike affect the ADX?

Whenever interest rates go up, it attracts investment away from other channels and into the interest rate channel. Therefore, we can base a strategy on that to tackle this problem whenever it arises. This is a cycle, so you have to be prepared for it. Our preparations are to diversify our financial instruments. We do not only have equity available on our market and we have also been concentrating on our bond and sukuk markets and instruments, and need to make more ETFs, warrants, and right issues readily available. It is up to us to give choices to investors. When interest rates go up, these instruments will make more sense to investors than equities. Perhaps in the future we will go into other instruments. When interest rates go up, part of that extra interest-generated money goes to banks, but a major portion also goes to bonds and sukuks. If we have them available on our platform, we would continue having liquidity available under the roof of the stock markets.

How does the ADX fit in with the government’s Vision 2030 goals?

The ADX is one of the newest exchanges in the Middle East. From day one, we concentrated on quality and the performance of our stock market and wanted to be the exchange of choice in the region. I can say we have achieved that goal. When other exchanges want to develop something new, they come to us. We have passed the stage of being part of the MSCI as an emerging market. We want to be part of the developed market as part of the Abu Dhabi Government Vision 2030. That is not easy. It requires changing investor attitudes, setting up infrastructure, and changes to the legal framework. We have developed a clear strategy to develop those three elements, which can be defined as behavior, structure, and law.