Abu Dhabi, similar to its closest rival Dubai, has aspirations to be the leading financial services centre in the region. After all, it is the United Arab Emirates’ seat of federal government and its commercial hub.
Development company Mubadala’s recent tie up with the John Buck Company of Chicago to build a new financial centre, including a stock exchange, on Al-Suwwa Island is indicative of these aspirations.
From the outset, the Abu Dhabi Securities Exchange (ADX) – which until earlier this month was known as the Abu Dhabi Stock Market – is well positioned to achieve its aims. According to recent reports, it was the second-best performer in the Gulf Cooperation Council last year. The index increased by 51.7% during 2007 and is already up 10% on last year. It hit a two-year high in the second week of May, passing 5000 points. In contrast, the Dubai Financial Market (DFM) is down 1.61%.
Analysts have suggested that one of the reasons for the exchanges’ markedly different performances is that ADX is benefiting from the influx of foreign capital over the past year. Valuations on ADX are also lower than those on the DFM.
Rising trade
Data from ADX shows that net foreign investment in the exchange was Dh9.9bn ($2.72bn) last year, compared with about Dh1bn in 2006. The daily average traded shares also rose by more than 415% from 40.1 million shares to 206.6 million traded shares a day.
There are 64 companies listed on the exchange and “a substantial increase” in new listings is expected during the coming months, according to the bourse’s chief executive, Tom Healy. He has headed the exchange since last September after spending 20 years at the helm of the Irish Stock Exchange.
Two factors are behind the likely surge in listing, he says. The first is the much-anticipated change in the UAE Companies Law, which should come into effect by the end of the year. Under the revised law, family-owned businesses will be able to float a minority of their shares, expected to be somewhere between 25% and 35%, against the 55% mandatory requirement now. Consequently, the number of anticipated initial public offerings is expected to surge.
The second factor is ADX’s push to attract foreign listings. The bourse’s rebranding is a reflection of this, designed to attract Asian exchange-traded funds (ETFs) to the exchange and thereby provide greater choice for local investors. ADX is the first exchange in the region to actively court ETFs, which are described as open-ended index tracking funds.
Financial services and real estate companies dominate the exchange. But with the expected listing of ETFs that focus on other sectors, such as electronics and pharmaceuticals, the exchange will become more diversified. And if ETFs do well in one sector, this should attract ETFs in other sectors, says Mr Healy. The aim, he says, is to provide “more varied and sophisticated investment products.”
In April, Mr Healy went on a roadshow to Taiwan and Tokyo; and in early May, ADX hosted a Japanese delegation. “We are pursuing individual projects on ETFs to become the leading stock exchange for ETFs in the region,” he says.
At the end of last year, ADX and the Taiwan Stock Exchange Corporation (TSEC) signed a memorandum of co-operation to strengthen ties and work together in new areas. One of these areas of co-operation is to develop ETFs that can be traded on both exchanges. TSEC’s chairman, Rong-I Wu, said at that time: “We agreed to study the ETF product for dual listing, especially for Islamic funds.”
Mr Healy is also sure that issuers will be interested in listing ETFs for leading Gulf securities. Yet, these listings will be more complicated than in Europe due to the foreign ownership restrictions on domestic companies, he says.
The first ETFs are expected to list on ADX in June. But before any ETFs can be listed, the Emirates Securities and Commodities Authority (the UAE regulatory body) must enact a new law. This, says Mr Healy, should also come into effect in June.
Taking the initiative
As well as encouraging the listing of ETFs, ADX has undertaken other initiatives. Last year it held roadshows in London and New York to introduce listed companies to numerous large asset management funds, financial analysts, investment funds and institutions in the UK and the US.
And ADX has signed memorandums of understanding (MoUs) with a number of stock exchanges: the Lahore Stock Exchange in 2006 and the Karachi Stock Exchange in March. In 2007, it also signed MoUs with Bahrain Securities Market, Singapore Exchange Limited, Hong Kong Exchanges and Clearing Limited. These are aimed at enhancing and strengthening co-operation between the exchanges to facilitate cross-listings and increase institutional participation.
Mr Healy is working to encourage greater co-operation with other exchanges in the region. He says: “We are willing to work with our neighbours to have joint ventures. We have made a point of announcing this publicly and then to individual stock markets.”
