Fund for All

The Abu Dhabi Securities Exchange (ADX) General Index recently rallied to its highest level in more than three years. What is spurring market confidence amidst so much global uncertainty?

In terms of performance, the ADX is up by almost 18.5% as of April 14, 2013, making it the fifth best performing market globally. In 2012, the ADX was up by 9%—there is a constant growth pattern here. We have noticed liquidity returning, and the activity picked up after ADX-listed companies reported good financial results in 2012. Based on a report by Al Fajr Securities, the total aggregate profits for local companies are valued at AED41.8 billion, which is up by 25.8% in comparison to 2011. The cash dividends issued in 2013 were valued at AED15 billion, which is 14% more than the previous year. ADX’s share of the total cash dividend distributed by companies listed on the UAE stock markets is 64%. Indeed, Abu Dhabi’s economy is expected to grow further. The IMF growth prediction is 3.1%, whereas the expectation for Abu Dhabi is 5.7%.

How can the ADX become more reflective of the economy in Abu Dhabi?

The economy of Abu Dhabi is expected to grow by 5.7%. It is clear that the non-oil sector is playing a bigger role than before, but the key driver is still the petrochemicals sector. However, there are no petrochemical companies listed on the ADX, meaning the main driver of the economy is not present on the exchange yet. There are also many other important sectors that are performing well but are not represented on the ADX, like education and healthcare. This means that the performance of the ADX does not reflect the real performance of the economy of Abu Dhabi. In addition, many other large companies operating in Abu Dhabi are not listed on the exchange because they are either private or family-owned companies.

What makes ADX attractive to the domestic companies that are listed?

It is a great advantage to be a part of a strong economy with a clear strategy as is the case with ADX and our close affiliation with the government through Vision 2030. One other advantage is being a full member of the World Federation of Exchanges (WFE). Actually, we are the youngest stock market to be awarded this honor since the inception of the organization. These factors represent an attractive opportunity for companies to be listed on the ADX. We are working very hard to promote Abu Dhabi, its agenda, its companies, and its vision. We encourage companies to channel themselves through this vision—that is to market themselves, be promoted, go abroad, and show off their products. We believe the liquidity is there and has always been available. It is simply a matter of time, it is a matter of building more confidence, and it is a matter of working harder to attract existing liquidity—especially institutional liquidity. If the companies were to take on such tasks, the result would be that the value of their shares would go up, and that is what companies want.

What is the ADX doing to attract international investors to the exchange?

We work closely with the relevant authorities on the matter of rules and regulations. We coordinate and cooperate to issue sets of rules and regulations that will further benefit the financial market in the UAE. These regulations make the lives of domestic and international investors easier, happier, and more secure. We are also working internally to continue to develop our infrastructure. For example, we are working on the enhancement of our delivery versus payment (DVP) model. We believe these moves will create an environment that will be familiar to international investors. And, of course, being recognized by the WFE is of great importance since it is one of the checks international investors make. Also, in our endeavor to attract investment, we have been holding road shows since 2004, where we showcase the opportunities of our listed companies and of Abu Dhabi to investors in those parts of the world. We have held road shows in Europe, the US, as well as the Far East in Hong Kong, Singapore, Japan, and South Korea.

In 2010, exchange-traded funds (ETFs) were introduced to the ADX. How has this been received by investors?

We were the first exchange in the Middle East to list ETFs. This is the positive side. On the other hand, we believe that investors still don’t fully understand what ETF means. As a result, they were not attracted to ETFs. Yet, ETF performance in 2012 was actually much better than most stocks traded on the exchange, but investors are still not sure what ETFs are. We, therefore, need to carry out awareness programs for the different types of investing that the exchange currently offers. We also need to develop better relationships with other exchanges and create opportunities by issuing different types of indices. We have plans to introduce new ETFs to the exchange, which would create more diverse investment opportunities.

What opportunities are you seeing in the growth of the sukuk market?

In 2012, the GCC was very active in terms of issuing sukuk bonds. It was a record number—and 54% of the issued sukuk bonds were from the UAE. Nevertheless, if you go to the market here, we only carry one convertible bond. Alternatively, we perceive big opportunities for having bonds and sukuks listed on the ADX. The opportunity will not come immediately given that bonds and sukuks are continually traded over the counter (OTC). This is the prospect we are looking at and we are working with the relevant authorities to achieve. We have already put the legal framework together and developed the internal set up.

What are some of the steps the ADX has taken recently to attract long-term institutional investors?

In principal, institutional investor operatives are asset managers. It is for that reason that ADX holds periodical meetings with assets managers domestically and internationally. In those meetings, we try to encourage asset managers to play a stronger role in the financial advancement of their clients by introducing them to the investment opportunities that the ADX has to offer. Also, we try to advise our individual investors toward the rational choice of investing by introducing them to fund managers. When fund managers buy and sell it is based on analyzing the market, charts, and history.

© The Business Year – April 2013