Strong economic performance in the UAE and plans by more local companies to open up to non-nationals will tempt foreigners to boost investment in domestic shares away from turbulent global markets, dealers said on Wednesday.
Foreigners are already pouring funds into the UAE’s two main bourses of Abu Dhabi and Dubai to take advantage of strong corporate performance, high share return, relative stability and decisions by more listed companies to open up dealing in their shares or increase foreign ownership in them.
Between January and March, the foreign ownership in the companies trading their shares in Abu Dhabi and Dubai fluctuated between 20 and 35 per cent, while it did not exceed 10 per cent in 2004 and 2005, according to the dealers.
“We expect a large increase in foreign investment in shares in the UAE this year compared to last year and 2006… there are many factors that make the UAE a tempting market for foreigners,” said Ziad Dabbas, share dealing adviser at the government-controlled National Bank of Abu Dhabi, one of the largest institutions trading its shares in the UAE.
“The most important factors are that the UAE economy is growing fast, oil prices are expected to remain high and return from shares here are very high… furthermore, some international banks have opened offices in the UAE and they are encouraging foreigners to invest here,” he told Emirates Business.
Dabbas said investment funds created by local banks and other financial institutions, and plans for more such funds have also encouraged foreign capital.
“These funds have highly qualified experts in asset management and they have succeeded in attracting foreign capital… they are also involved in massive marketing campaigns abroad and all this is attracting foreigners to the UAE… another key external factor is the turbulence in global markets, which have become more and more risky. This is pushing many investors away from those markets and some of them are heading for the UAE.”
The UAE has the second largest stock market in the Middle East after Saudi Arabia, with the combined market capitalisation of its Abu Dhabi and Dubai bourses standing at Dh954 billion on Wednesday, including Dh492bn for Dubai.
The surge in foreign investment over the past two years has boosted share dealing in the UAE after it was one of the quietest markets in the region because foreigners were not allowed to trade. While it was the main stimulant of dealing, the entry of foreigners turned the UAE into one of the most speculative bourses in the Middle East after it was the least speculative as trading was confined to nationals, most of whom had preferred long-term investments.
“There was a surge in foreign investment in the UAE shares last year but this year is expected to be even better,” said Bassam Al Rumhi, director of stock brokerage at the Emirates Securities Market in Abu Dhabi.
“There are many reasons for this expected rise this year, including plans by more companies to open up to foreigners or to increase the ratio of foreign ownership of their shares… other key factors are the investment safety in the UAE compared to the highly volatile global markets, the flexible economic and financial laws in the UAE compared to other Arab countries, and the stability of the UAE dirham against the dollar.
“Another element is that the decisions taken in the UAE are always to the benefit of the economy and the market, unlike in many other regional countries, where the decisions are based on many considerations before the general interests of the market and investors.”
954 Billion dirhams is the combined market capitalisation of the Abu Dhabi Securities Market and Dubai Financial Market as of Wednesday. Dubai’s share stands at Dh492 billion