Opinion is divided among stock market experts in the UAE on whether foreign investors, both individual and institutional, should be regulated in the country's bourses by strict rules or encouraged by maintaining the current laissez-faire policy.
Coinciding with the active return by foreign investors to local stock markets over the past few days, analysts that Emirates Business spoke to expressed a spectrum of views – from the need to frame strict guidelines for foreign investors to giving them unrestricted access to the markets. They agreed, however, that a regulatory framework was necessary, provided it did not deter foreign investors from the country's markets.
Dr Humam Al Shamma, Financial Adviser to Al Fajr Securities, said the Emirates Securities and Commodities Authority (Esca) should frame rules for foreign investment in the UAE markets to save the markets from more setbacks.
"Lessons from the immediate past, before and after the global financial crisis, clearly confirm that foreigners had a big role in the serious setbacks suffered by UAE share markets through their many violations of the laws," Al Shamma said, without elaborating what these violations were.
He said it was required to make it mandatory for foreign investors to disclose their strategy of work – whether their entry into the markets was meant for speculation or healthy and long-term investments.
There should be strong monitoring of the activities of these investors and they should be required to commit to Esca laws and regulations, said Al Shamma.
He said such regulations should be announced quickly, adding that within two days last week, foreigners entered the markets with Dh127 million and left with Dh44m.
Al Shamma said foreign funds entering the UAE's share markets during the period from October 7, 2007 to June 11, 2008, amounted to Dh15.2 billion, of which Dh14.5bn left the country between June 12, 2008 and the end of last week. Therefore, net foreign investment in the markets from October 7, 2007 to February 13, 2009 totalled only Dh749m, he explained.
Meanwhile, some analysts have asked not to impose any restrictions on foreign investors, which might make them leave the country. Such investment should instead be steered towards serving the national economy, they said.
Mohammed Ali Yasin, Managing Director of Shuaa Securities, said individual foreign investors pose no risk but regulations should be set on corporate foreign investment. Esca should continue to strongly monitor foreign corporate investment, he said.
"There should be legislations for the monitoring of corporate foreign investment, particularly through foreign brokerage and investment companies working within the DIFC."
Yasin highlighted a second problem for the UAE economy – that of the transfer of foreign funds outside the country. Over a period of three months last year, some Dh190bn left the country, he said, and the Central Bank should impose regulations for the exit of such funds.
Parties bringing the funds into the country should be obliged to disclose why they are taking them out. Also, UAE banks should be aware how these funds enter the country and they should use them in a good manner.
Nazem Al Kudsi, financial expert and CEO of Abu Dhabi Investment Company, said the current situation in the UAE's stock markets has made it very tempting for both foreigners and nationals to buy. The strength of the UAE economy as well as the rising share prices was making it very enticing to invest in the UAE's bourses, he said. Also, the volume of the share market is growing and its value is approaching half the value of the national economy.
Haytham Orabi, Chairman of Minagulf company for alternative investments, which is in the process of being set up, was also against regulations or restrictions on foreign investment in UAE stock markets.