The Abu Dhabi Securities Exchange (ADX) will focus on the development of a bond market in the coming period after it introduced the long-awaited exchange traded funds (ETFs), its Acting CEO said yesterday.
Rashed Al Baloushi also urged 67 firms listed on the ADX, one of the largest stock markets in the Middle East, to expand foreign ownership of their shares to take advantage of the upcoming mandatory corporate governance law. In an interview with Emirates Business, Baloushi said plans to introduce derivatives are still on the cards but had to be delayed in co-ordination with other GCC bourses because of the global financial crisis. He said foreigners had never left the ADX and his advice to investors is to avert speculative trading and focus instead on long-term investment.
"The delay of our previously announced plans to initiate the derivatives market in co-ordination with other GCC markets was the result of the global financial crisis, as we had to re-prioritise our objectives and strategies in response to the existing realities. Any new instrument will always be on the cards given how suitable it can be to our markets," Baloushi said.
"To achieve consistent development we are obliged to proceed gradually towards introducing new instruments given the relatively small size of our market," said Al Baloushi
"Our priorities at this stage focus on the ETFs, to be followed by enhancing the debt market in the UAE and the region," he remarked.
Baloushi said national companies listed on the ADX need to open up to foreigners to support the country's drive to attract capital. "Local companies need to allow more stakes to foreigners. The new mandatory corporate governance codes will apply from next month, and such a step is expected to provide foreigners with more transparency and better disclosure," said Baloushi, also ADX Director of Operations.
He expected good performance of the ADX in 2010 because of global recovery and projected growth in Abu Dhabi's economy. His figures about foreign investors showed they accounted for nearly 35 per cent just after the crisis, with a positive net foreign trading of Dh1.22 billion in 2009. Year-to-date, it stood at around Dh105 million and Britons accounted for 21 per cent of the total.
What are your expectations for the ADX in 2010?
The global economy is beginning to see the first signs of recovery as per the first quarter results and figures for economies and corporations (countries such as the US, China, India and corporations such as Intel and JP Morgan).
A report by Merrill Lynch issued last December suggested that in 2010, the global economy will grow by 4.3 pe cent, China by 10 per cent, India seven per cent, the United States two per cent, Japan three per cent, the United Kingdom 0.4 per cent and the EU 0.7 per cent. The report forecasts reduction in unemployment, increasing government spending, reduced interest rates and corporate restructuring to reduce costs and increase income.
The UAE is not isolated from the global economy, and hence as the crisis had a negative effect, we expect the recovery to have a positive influence.
Abu Dhabi's economy is expected to report robust growth as well, according to recent media reports with the non-oil sector growing in 2009 by four per cent and is expected to grow by six per cent in 2010, while foreign direct investment will also increase by nine per cent. The overall economy is expected to grow by three to five per cent, with the GDP growing from Dh519.9 billion in 2008 to Dh535bn in 2009 and is expected to exceed Dh560bn in 2010.
A new instrument has been introduced in the first quarter [the ETFs], and soon NBAD will be listing the second ETF, marking the beginning of a new era, though it is still early to predict the rate of success, yet we will always keep innovating.
Both the price to earnings Ratio (P/E) and the market value of the listed securities are up to date very attractive, with the PE currently standing at 10X and the market value of many listed shares approaching the book value, and we still expect that to influence the performance in 2010.
What about foreign investments?
During the peak of the international financial crisis [2009], the ADX issued 7,414 new investor numbers for non-UAE investors bringing the total of registered foreign investors to 334,632 by the end of 2009.
Foreigners continue to constitute an important portion of trading before, during and after the crisis, accounting in 2009 for 35 per cent of the total value of trading in 2009 and a positive net trading position of Dh1.22bn, and year-to-date it currently stands at Dh105m. During the year, the UK alone accounted for 21 per cent of the total value of foreign trading followed by GCC, especially Qatar, Kuwait and Saudi Arabia.
Foreigners never left the ADX; rather their positions fluctuated reflecting their sentiment towards equities in general, and their need to cover exposed positions overseas through liquidating assets. The impact of the crisis on foreign investment was more obvious to many observers, given the drop in their holdings from 13 per cent of the total shares in 2007 to nine per cent in 2008.
We cannot forecast the direction of foreign investments in any given year, as this is related to circumstances, most of which are out of our control. However, what we do control is providing a suitable and welcoming business environment, and our endeavours in this respect are relentless. Listed firms can help encourage foreign investments through allowing more stakes for foreigners.
Have you officially launched ETFs and how many ETFs you expect this year?
We officially launched the ETFs market on March 25 through listing the first ETF in the region for the National Bank of Abu Dhabi (NBAD); namely the OneShare Dow Jones UAE 25 ETF.
NBAD announced the listing of its second ETF for the Global Fund soon, to be the second ETF to list this year. The trading platform was ready to accommodate this new instrument since last year, but the prevailing international financial crisis resulted in delaying the plans of the issuers.
The number of ETFs to list this year is closely related to two factors: The rate of success for the listed ETFs and the extent of recovery in the financial world. At present we are focusing on the awareness programme, and recently we launched a familiarisation and awareness campaign targeting all stake holders including ADX employees, investors and brokers in Abu Dhabi, as well as throughout the UAE via our different branches.
Are your plans to introduce derivatives still on the cards?
The delay of our previously announced plans to initiate the derivatives market in coordination with other GCC markets was the result of the global financial crisis, as we had to re-prioritise our objectives and strategies in response to the existing realities.
Any new instrument will always be on the cards; given how suitable it can be to our markets. To achieve consistent development we are obliged to proceed gradually towards introducing new instruments given the relatively small size of our market.
Our priorities at this stage focus on the ETFs, to be followed by enhancing the debt market in the UAE and the region.
What is your advice to local investors? Should they invest in stocks?
No one can guarantee a problem-free market, as investment is always associated with risk. Nevertheless, our advice for investors is to focus on the long term and the prospects of economic growth in Abu Dhabi.
Another advice is that speculative trading can be healthy for the market to an extent, but for investors who decide that it is the only method, losses are eminent.
The ADX provides alternative investment and savings vehicles, and prudent investors who focus on real growth rather than timely fluctuations will always win.
The ADX is consistently recording annual growth, and we believe this trend will continue given the excellent performance of the listed companies.
Investors need to base their buying and selling decisions upon systematic analysis, observing the performance of the listed companies. These companies reported combined profits exceeding Dh30bn in 2009.
Investors are also advised to avoid rumours and "cattle" behaviour.
Do you have any proposals to listed firms to attract foreign investors?
First, local companies need to allow for more stakes to foreigners.
The new mandatory corporate governance codes will apply from next month, and such step is expected to provide foreigners with more transparency and better disclosure.
In 2009 more than 85 per cent of the listed companies submitted the annual financial statements on time and based on the IFRS standards, and these practices are expected to be enhanced with the introduction of the new codes, providing foreigners with a very positive sign.
PROFILE: Rashed Al Baloushi Acting CEO and Director of Operations at ADX
Al Baloushi joined the ADX in April 2000 where he played an instrumental role in the establishment of the market in November 2000. He started his career at the ADX as Manager of the Clearing, Settlement, Depositary and Registry Department. Earlier, he was head of Registrar and Depository at the Abu Dhabi Fee Zone Authority.
Al Baloushi has an MBA from the UAE University and a Bachelor of Science in Computer Information Systems from Benedict College, Columbia, South Carolina, United States.
The ADX story
Established in November 2000, the ADX is the official stock exchange of Abu Dhabi. The ADX serves the domestic cash equity market, has 67 listed companies and a market capitalisation of Dh309.9 billion as at the end of March. On March 25, 2010, the ADX launched the first exchange traded funds (ETFs) trading platform in the Gulf region by listing National Bank of Abu Dhabi's OneShare Dow Jones UAE 25 ETF.
In line with the Abu Dhabi Government's Economic Vision 2030, the ADX aspires to become the leading stock exchange in the Gulf by spearheading the development of the UAE capital market through a well-regulated marketplace in a lawful environment that ensures integrity, transparency and disclosure. Investors can trade securities listed on The ADX through any of its registered brokers and the ADX has custody agreements with HSBC, National Bank of Abu Dhabi, Standard Chartered Bank, Deutsche Bank and Citi.
ETF, What?
A security that tracks an index, a commodity or a basket of assets, but trades like a stock. ETFs experience price changes throughout the day. 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