THE UNITED ARAB EMIRATES STOCK MARKETS

 

The UAE had an informal stock market since 1986 and around 90 public limited companies were listed and traded on this informal stock market. However, trading was mostly restricted to 32-36 companies’ shares, since most of the other companies shares are closely-held by the government, family interests and high networth individuals. The informal market existed until the establishment of Dubai Financial Market in Dubai and Abu Dhabi Stock Exchange in Abu Dhabi in 2000.

Dubai Financial Market was established as a public institution having its own independent corporate body and it commenced operations on 26th March 2000.  Dubai Financial Market was converted into a public joint stock company in 2005 with a paid up capital of AED 8 Billion and twenty percent (20%) its shares were offered for public subscription. DFM is operating as a secondary market for trading of securities issued by public joint-stock companies, bonds issued by the Federal Government or any of the Local Governments and public institutions in the country, units of investment funds and any other financial instruments, local or foreign, which are accepted by the Market.

 

Similarly, the Abu Dhabi Securities Exchange (ADX) was established on 15 November 2000 by Local Law No. (3) of 2000 as a legal entity with autonomous status.  ADX which has the authority to establish centers and branches outside the Emirate of Abu Dhabi, currently has its presence in Fujeirah, Ras al Khaimah, Sharjah and Zayed City.

Dubai Financial Market and Abu Dhabi Securities Exchange provide separate listing and trading facilities without cross-listing. Currently, there are 62 companies and 5 bonds listed on the Dubai Financial Market, while Abu Dhabi Securities Exchange has 67 companies listed on it. There are 97 brokerage companies and 100 brokerage companies operating in the Dubai Financial Market and Abu Dhabi Securities Exchange, respectively. Dubai Financial Market operates an automated screen-based trading system which is order driven with matching buying and selling orders. The market has a T+3 settlement system and is open for trading from Sunday to Thursday between 10.00 am to 2.00 pm.  Abu Dhabi Securities Exchange is open for trading from Saturday to Thursday between 10.30 am to 12.30 pm and has an electronic trading system with fully automated central limit order matching screen trading and an associated electronic central register and clearing and settlement system. Currently it has a T+3 settlement cycle and a wholly owned clearing and depository institution.  

 

UAE Stock Markets’ Market Capitalization and GDP

The formal stock markets of the UAE witnessed a huge jump in market capitalization both on account of price appreciation and new listings. The combined market capitalization of the two stock markets, Dubai Financial Market and Abu Dhabi Securities Exchange, was US$ 44.5 billion i.e, about 50.8% of the country’s GDP of US$ 87.6 billion in 2003. However, over the past 4 years market capitalization increased to US$ 259.3 billion, i.e., 130.5% of GDP of US$ 198.7 billion in 2007. During the current year the market capitalization declined to US$ 182.72 billion (as on October 31, 2008) on account sharp correction in share prices on account of the credit crisis, fear of global recession and falling oil prices.

 

Dubai Financial Market

Listed Companies and Market Capitalization

The Dubai Financial Market recorded strong growth both in terms of number of listed companies and their market capitalization since its inception.  Number of listed companies has increased from 12 in 2000 to 65 in 2008. In addition to that, the stock market also has 5 bonds listed on it. Similarly, the market capitalization increased from US$ 5.76 billion to US$ 138.16 billion in 2007. On account of a sharp price decline during 2008, the market capitalization had fallen to US$ 89.15 billion by the end of October 2008. 

 

Price Appreciation and Turnover

As it is obvious with any new market, the Dubai Financial Market’s turnover increased from US$ 0.12 billion in 2000 to US$ 13.9 billion in 2004 and further to US$ 110.31 billion in 2005. Along with this, the Market also witnessed huge price appreciation of 150% in 2004 and another 197.1% in 2005. During 2006, the Market Index declined by 44.4% and turnover also declined to US$ 94.74 billion.  During 2007, the Market Index appreciated by 43.7% and turnover also increased to US$ 103.29 billion.  During 2008, on a year-to-date count until October, the Market Index had fallen by 50.9% and turnover also declined to US$ 72.97 billion.

 

 

 

Abu Dhabi Securities Exchange

 

Listed Companies and Market Capitalization

The Abu Dhabi Securities Exchange also witnessed sharp growth in the number of listed companies and their market capitalization over the last 4 years.  While number of listed companies increased from 35 in 2004 to 64 in 2007, their market capitalization increased from US$ 55.49 billion to US$ 121.11 billion, over the same period. Though 2008 witnessed 3 more listings, the market capitalization declined to US$ 93.56 billion by the end of October 2008, mainly on account of sharp decline in share prices.

Price Appreciation and Turnover

 The Abu Dhabi Securities Exchange also witnessed significant improvement in valuation levels. The Market Index appreciated by 74.8% in 2004 and another 51.3% in 2005, while turnover increased from US$ 4.45 billion to US$ 26.45 billion, over the same period. However, the Market Index declined to 35.4% in 2006 and turnover also declined to US$ 19.22 billion.  As the Market Index revived sharply by 51.7%, turnover also increased to US$ 66.96 billion in 2007. 2008 was again a dismal year for the Abu Dhabi Securities Exchange as the Market Index declined 26.9% by the end of October, however, turnover remained comparable to the 2007 level at US$ 60.77 billion over the same period.

 

 

Market Volatility

Being the frontier markets, the UAE stock markets were always prone to high volatility. The UAE stock markets remained highly turbulent during 2008, particularly since the news of credit crisis and housing market defaults in the US followed by the onset of recessionary conditions in major developed economies started appearing in various media.  While daily volatility touched an all- time high of 3.9% and 5.5%, intra-month variations reached to 62.13% and 92.51, respectively during the month of September and October, 2008.

 

Current Valuation Levels and Future Outlook

The current valuation levels in these markets are very attractive subsequent to the recent global market turmoil and their dampening effect on these markets.  However, investors’ sentiment is still quite weak on account of uncertainty caused by the global credit crisis, huge depreciation and write-offs in the local banking and investing institutions’ overseas assets, short-term liquidity crunch, ensuing global recession and fear of further decline in oil prices. It may take a few months for the investors to regain confidence.

Dubai Financial Market and Abu Dhabi Securities Exchange became the second largest Gulf stock markets with a combined market capitalization of US$ 90.6 billion in 2004, surpassing Kuwait Stock Exchange.  On account of the Emirates desire to become the financial and trade centre of the Middle East and North African region, the future prospects of these markets are very positive.