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11 December 2023

FIIs emerge as market drivers

By Mohamad Al Kady



Foreign institutional investment (FII) accounts for less than 3.5 per cent of the total capitalisation of UAE stock markets but has the power to determine everyday movements with a share of between 25 and 35 per cent of daily traded turnover, analysts said.

This small but active component has a huge impact on local stocks each day. Foreign institutions and funds were the driving force behind last month’s bear trend in the UAE when they started pulling out of equity markets globally.

Analysts are concerned that in spite of the UAE stock markets being shielded against fears of US recession, foreign institutional activity is creating a “pessimistic overreaction”.

The UAE’s economic indicators and corporate profitability support expectations of a rise in the stock indices, while the country’s banks have zero or minimal exposure to the sub-prime crisis.

Analysts also forecast that the GCC states, including the UAE, will be able to overcome any global recession due to the increasing surplus in their budgets, even if oil prices drop to $40 per barrel.

Market-watchers said that local investment banks and funds should act as market-makers instead of passive investors, and stop following the lead of global funds.