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13 April 2024

Listed firms asked to open up to foreigners to lure more capital

Updating rules and regulations is an ongoing process at ADX (ERIK ARAZAS) 

By Nadim Kawach

The Abu Dhabi Securities Exchange (ADX) urged listed companies yesterday to open up to foreigners to support the country's drive to lure in capital and said plans to launch Exchange Trade Funds (ETFs) in March.

ADX Deputy Chief Executive and Director of Operations, Rashed Al Baloushi, said 2009 would not be an easy year and called on investors to avoid rumours and speculation to ensure stability in the local market.

In an interview with Emirates Business, Baloushi said the UAE allows a 49 per cent ownership for foreigners and said he hoped all listed firms would abide by that rule and increase foreign shareholding in them.

How do you assess the performance of ADX in 2008 and what are your expectations for 2009? Do you think it will be better than last year and why?

If you compare 2008 to 2007, you will be surprised that the total value of traded shares surged by 32 per cent from around D175 billion to Dh232bn. Volume declined by only around four per cent. But these do not show the real figures. So we decided to break them down into two halves in order to be more realistic.

The figures showed that in the first half of 2008, the value of traded shares jumped by 216 per cent and volume by nearly 93 per cent. The number of trades also grew by nearly 60 per cent. In the second half, however, the value decreased by 44 per cent and volume by 56 per cent. The number of traded shares also went down by 40 per cent.

What happened in 2008 was due to the fear of the global financial crisis. Is it true?

What happened was not only fear but as you know it was a worldwide crisis. The problem started in the United States and affect Europe because if you look at the world, nearly 25 per cent of the economy is concentrated in the US. So what happened in the US affected Europe and spread to the emerging markets. That caused big fund managers to withdraw their money for one reason – to fulfil the shortage they had in their own countries. As the crisis spread, it affected all the markets worldwide. But no one had really estimated the size of the crisis.

What about 2009? Do you think it will be as bad as 2008?

Looking forward and to be honest with you, 2009 will not be easy. The influence will continue this year but if you look at the UAE, the IMF had spoken about a growth of around 3.5 per cent in 2008 despite the crisis. It has also projected a growth of between two-four per cent for the UAE this year. Abu Dhabi now has the 2030 economic vision so if the global markets start to pick up again in the second half and the UAE markets follow it, this will add value to the Abu Dhabi economic situation. So I think with this kind of vision, with this kind of building of the infrastructure, and with this kind of support for the financial sector by the government, I expect the local market to gradually regain stability and 2009 could be a better year. But, of course, I don't think there will be any collapses.

Are there any new laws, plans or measures to be taken by ADX this year to upgrade performance, develop dealing and ensure better security and stability?

Updating rules and regulations is an ongoing process at ADX. We are always trying to improve and update rules. We are now in contact with the listed companies to implement the corporate governance law issued by the authorities. Next year, it has to be implemented 100 per cent. We are also working with the authorities to introduce new financial instruments like the Exchange Trade Funds (ETF) and derivatives. We are in touch with the concerned authorities to have such instruments as soon as possible.

What about foreign investors? Do you think there will be an increase in foreign shareholding in ADX companies this year or you think that listed companies will cut the maximum limit for foreign ownership because of the global crisis?

Foreign ownership is stated clearly in the 2030 Vision and the country encourages direct and indirect foreign participation. We, at ADX, are trying to attract foreign capital, especially institutional investors. If you look at foreign participation at ADX, it accounted for around nine per cent (Dh25bn) at the end of 2008. We would like to see an increase in that level, particularly through institutional investors. There was decline in foreign investment recently mainly because some of them investors paused to inject liquidity in their own country. Therefore, some of them pulled out of the market and steep declines were witnessed at the local bourses.

Are you still trying to attract foreign capital? If yes, how? And what role can the listed companies play in this regard? Do you think they should open up ownership to foreign investors?

We urge companies to adhere by the 2030 Vision and open up to foreign investment directly or indirectly. Some companies have cut the level of foreign ownership but if you look at the UAE laws, 49 per cent could be owned by foreign investors and we in the market are trying hard with the listed companies to encourage them to open up to foreign investments. So we call on them again to open up more but, of course, we cannot force them to do so.

When do you expect ETFs to be launched?

When it comes to the ETF, as we talk now, the rules are ready and the authorities have already approved the mechanism of this process. So, I can tell you that systematically we are ready and the issues are ready and are in the final stage to close the structure, the basket and the combination of ETF. What is left now is that we are waiting for the right time because it is the first time we introduce ETFs and we do not want to rush. We are waiting for the awareness programmes which will start soon. Afterwards, ETFs will be launched. We want to have a strong start. The initial plan is to introduce ETFs by the end of March. If we see strong demand by investors, then it can be launched in March. But I again say that we want to be very careful and should not engage in a random process.

As for derivatives, we are co-ordinating with the stakeholders to create derivatives in our exchange but again we have to be careful because this is a major process.We are planning to have it by the end of 2009 and we are working day after day to put together all the necessary rules and regulations to make it happen through awareness programmes and efficient process.

As for their effects, there is no doubt that the ETFs and derivatives will contribute to stabilising and diversifying the market. They will also increase liquidity.

ETFs have proved themselves to be popular with both retail and institutional investors and we would like to give investors the opportunity to trade ETFs on ADX. Not only are they a way of diversifying, but they tend to be more cost-effective than mutual funds, as well as more accessible, flexible, liquid and transparent. ETFs are ideally suited to our retail-heavy market. They will give investors the opportunity to diversify, spreading their risks. ETFs may also encourage international investors to look at our market.

Do you have any message for investors?

My message to investors – local and foreigners – is that if you look at the UAE, it is a very stable country and has a very clear vision. My advice to them is that they should always consider their investments as a long-term and therefore they should not base it on speculation.

They have to invest their savings after carefully studying the market and the economy in order to take the right decision. I urge them to not to lend their ears to any rumours in the market.

As for the prevailing fear of the crisis, I can say that the global crisis is there. If I tell them to ignore that fact, I will be fooling them. But they have to look to Abu Dhabi and the UAE and see how it is affected. They need to study the local market and economy carefully and diligently before they take an investment decision.

What is ETF

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.

ETFs experience price changes throughout the day as they are bought and sold.

Its main features are:

- Combine portfolio characteristics of an open-ended mutual fund with the liquidity and tradability of a listed equity share

- Traded on a stock market

- Track indices or asset classes

- Priced throughout the trading day

- Open-ended tracking funds