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24 April 2024

UAE markets go West, and East

By Frank Kane

With little fanfare, the Abu Dhabi Stock Market (ADSM) last week put in place another thread in the impressive web of deals, alliances and partnerships it is putting in place in the Far East.

ADSM signed a deal with the Tokyo stock exchange to facilitate cross-border investments, possibly common trading platforms and compatible regulatory regimes in the two markets. It is another sign that the capital’s financiers are looking East in their search for new investment opportunities, and markets for their enormous capital reserves. Last year, ADSM signed similar deals with Hong Kong, Singapore and Taiwan. A deal in Japan, and some form of alliance with one of the booming mainland Chinese markets, and Abu Dhabi will have influence and contacts in all significant financial markets east of India.

The Tokyo deal is not an alliance of equals, of course. Even though Japan has spent ten years in the economic doldrums, it is still the biggest market in Asia, and the only one to rival London and New York in global terms. ADSM is still a “frontier” market in size and structure, and is still competing with its regional rivals for the top position in the Gulf.

Which brings me to the point rather conveniently. While ADSM is looking East, Dubai has made a pretty good job of the rest of the world. Deals with the OMX in northern Europe, the shareholding in the London Stock Exchange, and the very significant alliance between Dubai International Financial Exchange and the US’s Nasdaq, have given the two Dubai markets a firm grip on financial relationships with the great centres of investment in the Western world.

It is not too fanciful an idea to think that in a decade or so from now, the UAE could be literally at the centre of the world’s financial markets, with a string of alliances and relationships radiating out from the Gulf across the rest of the world. The time differences would enable UAE to “bridge the gap” in the daily trading cycle that sees investment activity follow the path of the rising sun across the globe, and there is little argument that the country has the most advanced financial infrastructure in the region.

There are competitors, of course. Saudi Arabia is the biggest financial power in the region, by a long way, and Riyadh is the highest-capitalised and most active market in the Middle East. But there are also disincentives to doing business in Saudi. I remember in the early 1990s when Frankfurt was making great attempts to overtake London as Europe’s financial market place, many investment bankers were sceptical about living in the dour German city. They voted with their feet by coming to London, and I suspect the same would happen if the alternatives were, say, Dubai versus Riyadh.

Qatar too has considerable ambitions, especially in its relationship with LSE. For some reason, which has never been adequately explained to me, LSE seems to marginally prefer Qatar to Dubai as a Gulf financial partner. I am sure there have already been talks to settle this issue, involving an exchange of shares between Qatar and Dubai to stabilise the balance, and a long-term resolution cannot be far away.

So the UAE finds itself well-positioned in the race to be one of the world’s financial powerhouses. This strikes me as a good time to seriously initiate the process on internal consolidation of the country’s three markets. It’s always better to speak with a single, unified voice, instead of three.