Trading in shares has made a big comeback in Dubai with the Dubai Financial Market (DFM) recording strong volumes yesterday.
The news comes as the emirate's bull market continues into its seventh week, bringing a reprieve for the emirate's loss-making stock exchanges.
Traded values reached Dh713 million (US$194.1m), a two-year high for the exchange.
The bounce comes at a welcome time for Dubai Financial Market Company, the Gulf's only listed stock exchange, where revenue fell by one third as trading activity dwindled. DFM Group, including its subsidiary Nasdaq Dubai, reported a net loss of Dh6.9m for last year, compared with a profit of Dh78.9m a year earlier.
Stocks on the DFM General Index have risen 23.8 per cent since the start of the year, entering a bull run on January 16. The index rose 2.7 per cent yesterday to 1,676.49.
Dubai stocks closed at their highest since April, surpassing levels reached last June before the UAE was denied an upgrade to "emerging market" status by the index provider MSCI.
The rally vindicated a sense that local stocks were due for a correction, amid stronger-than-expected company earnings and a burst of spending by the Abu Dhabi Government, said Fathi ben Grira, the chief executive at Menacorp, a financial services firm based in Abu Dhabi.
"It had to happen one day," he said.
But the recent rally encouraged a return of investors who had eschewed trading in local markets since the onset of the global financial crisis, particularly at the high-net-worth end of the market, Mr ben Grira said.
"Accounts that have been inactive for two to three years have been reactivated," he said.
Dubai's stock market was one of the most active in the region before the global financial crisis, but the withdrawal of speculative "hot money" around the time of the crash has resulted in low volumes since 2008.
Even given yesterday's increase, the value of stocks traded remained a fraction of the Dh10.9 billion traded at the peak of activity in November 2007.
Saudi Arabia has also benefited from a surge in liquidity, with daily trading values on the Tadawul All-Share Index crossing the $3bn mark for the third time in the past seven days as traders anticipate a loosening of restrictions on international investors this year.
However, the Abu Dhabi Securities Exchange (ADX) has languished, with volumes remaining relatively low. The ADX General Index has gained 7 per cent since the start of the year, and rallied 1.2 per cent yesterday to 2,571.58.
Many investors avoided local markets over the past year despite improving fundamentals in the region, largely as a result of external shocks, said Daniel Rudd, the head of Middle East and North Africa wholesale at HSBC Global Asset Management.
"Local investors have not only been keeping an eye on the European debt crisis, but have also been sitting on the sidelines awaiting the outcome of the Arab Spring," he said.
Amid the weak market activity, banks including HSBC Middle East and Shuaa Capital have wound down their retail brokerages to focus on institutional clients.
About half of the UAE's brokerages ceased operating last year after a period when they proliferated, eroding potential economies of scale.
The improvement in market liquidity, if sustained, may also go some way towards alleviating the concerns of MSCI about the reclassification of the UAE as an emerging market. The index provider said in December that it would consider levels of trading in its review of the UAE and Qatar exchanges, due in June.
ghunter@thenational.ae
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Defined benefit and defined contribution schemes explained
Defined Benefit Plan (DB)
A defined benefit plan is where the benefit is defined by a formula, typically length of service to and salary at date of leaving.
Defined Contribution Plan (DC)
A defined contribution plan is where the benefit depends on the amount of money put into the plan for an employee, and how much investment return is earned on those contributions.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Name: Peter Dicce
Title: Assistant dean of students and director of athletics
Favourite sport: soccer
Favourite team: Bayern Munich
Favourite player: Franz Beckenbauer
Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates
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Stage result
1. Jasper Philipsen (Bel) Alpecin-Fenix 4:42:34
2. Sam Bennett (Irl) Bora-Hansgrohe
3. Elia Viviani (Ita) Ineos Grenadiers
4. Dylan Groenewegen (Ned) BikeExchange-Jayco
5. Emils Liepins (Lat) Trek-Segafredo
6. Arnaud Demare (Fra) Groupama-FDJ
7. Max Kanter (Ger) Movistar Team
8. Olav Kooij (Ned) Jumbo-Visma
9. Tom Devriendt (Bel) Intermarché-Wanty-Gobert Matériaux
10. Pascal Ackermann (Ger) UAE Team Emirate
