ON THE MEND

Abu Dhabi 2016 | FINANCE | REVIEW: CAPITAL MARKETS

The presence of foreign investors on the ADX is well-established, with 45.6% of all buy/sell trades in 1H16 coming from non-Emirati nationals.

Established in 2000, the Abu Dhabi Securities Exchange (ADX) saw a strong run up over the 2012-2014 boom period, though has been tracking sideways ever since, with volumes dropping. Naturally, much of the more intense trading occurred before the ADX was added to the Emerging Markets Index by Morgan Stanley MSCI in 2014, with the froth coming off the top soon after. Combine this with a generally moot outlook for crude oil prices over late 2014 through 2015, and slowing GDP growth for the Emirate, and the sleepier trading position the ADX has found itself in is of no surprise.

A number of stocks on the ADX retain ownership limits for foreign investors, though these have not scared off those looking to trade on the market. Over 1H16, while Emirati nationals held over 80% of all stock, their proportion in the active value of buy/sell trades for the ADX was just 53.4%. Other Arab nationals chipped in another 16.8% of all buy/sell trades, according to the ADX, leaving all other types of foreign investor making up for the final 28.8% of trades by value. Equally of note is that the ADX is very much the preserve of equities, although attempts are being made to promote more activity in the investment fund area and bonds market, with sharia-compliant sukuks seen as a potential growth area going forward.

The ADX saw 60% growth in its general equities index over 2013, rising to 4,185.65, before hitting its all-time high of 5,253.41 at the end of May 2014, showing a 26% upward spike since the start of the year. However, the index fell back to 4,536.55 by the end of 2014, still up 9% in annual terms. For 2015, the index went into reverse gear, sliding some 5.06% over the year to 4,307.26, much a reflection of the impact of lower oil revenues on local economic activity. However, the ADX has seen a bit of a return to form over 2016, up 4.42% to 4,497.26 by end-1H16, with the telecommunications (up 17.7%) and real estate (up 17.58%) sectors leading the charge, though the services (9.67%) and energy (7.55%) sectors also played supporting roles. While the banking sector has dragged the index down somewhat, off 2.22% in YtD terms over 1H16, the second half of the year may see that metric return into positive territory on the back of a major merger between the National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB).

BY THE SECTOR

Of the 68 companies listed on the ADX, 66 of them are publicly traded, with the remaining two present as private companies. Despite the broad range of sectors featured on the exchange, the ADX is very much dominated by a limited number of companies by market volume and capitalization, and an even smaller number of sectors.

In terms of market capitalization, by end-May 2016 the ADX came in at AED411.67 billion ($112.10 billion) according to the official monthly report issued by the exchange. Of note is that of the top 10 companies on the ADX by market capitalization, nine of them are from the banking sector. The banking sector, composed of 14 representatives, formed 35.85% of total market capitalization, and as a whole was off some 2.2% in year-to-date (YtD) terms by end-1H16. The banks represented include well-known big names such as Abu Dhabi Commercial Bank (ADCB) and NBAD, as well as a number from the northern Emirates, including the National Bank of Ras Al-Khaimah (RAK Bank), the National Bank of Umm al-Qaiwain, the National Bank of Fujairah, and the Bank of Sharjah, meaning that five of the seven members of the UAE have banks listed on the ADX. For the banks listed on the ADX, the big news in 2016 was the July approval of the merger between two heavyweights on the index, NBAD and FGB. The mooted get together, with a joint market capitalization of some AED106.92 billion ($29.13 billion) as of 1H16, will likely create a financial powerhouse with an asset base of some $175 billion, giving it a far greater presence both regionally and internationally, and fulfilling some of the Abu Dhabi government's objectives of streamlining its finance and investment strategies. The subsequent entity will carry the NBAD's branding, even though by market capitalization it is slightly smaller (at AED50.20 billion [$13.68 billion]) than FGB (AED56.70 billion [$15.45 billion]).

The second largest sector on the ADX by market capitalization as of end-May 2016 is that of real estate, with a 33.75% share of the total. While four stocks are represented on the index, Aldar makes up the lion's share of the real estate sector's market capitalization at AED21.15 billion ($5.76 billion) by end-1H16. The local real estate giant has performed well of late, engaging in a serious deleveraging campaign since 2014, while focusing its activities on key investments, including its Yas Island mixed-use project. In 1Q16, Aldar announced revenues were up 4.2% to AED1.23 billion ($340 million), with the company selling 320 housing units off plan over the quarter for AED920 million ($250.68 million).

In third place for market capitalization is the telecommunications sector, at 14.33% of the ADX total. Of note, two of the three companies represented are foreign listings. Sudatel is a Sudani mobile telecommunications provider, which also has a listing window in Bahrain, while Ooredoo is the local vehicle for Qatari mobile provider Qtel. However, the real heavyweight in the sector is the UAE's telecommunications giant Etisalat. At end-1H16, Etisalat has a reported market capitalization of AED164.80 billion ($44.91 billion), making it far and away the biggest stock listed on the index, even exceeding the combined total market capitalization of the next four largest listed companies, all of which are banks.

While Abu Dhabi's economy rises and falls depending on activity in the energy sector, it only has two companies featured on the ADX, and just one of them is based out of Abu Dhabi. Of note, neither of them directly deals with crude oil. In terms of market capitalization, the energy sector represents just 4.01% of the ADX total. The Abu Dhabi National Energy Company, better known as TAQA, is the local provider of energy and water services for consumers and business in the Emirate, while Dana Gas, 16% owned by Crescent Petroleum of the UAE, has extensive natural gas production and distribution interests in the MENA region. Dana Gas is currently awaiting the outcome of two arbitration processes concerning agreements made with the Kurdish Regional Government (KRG) in northern Iraq and with the government of Iran that could see an extensive inflow of revenues should they both end in a positive result.

Coming in fifth place by market capitalization is the services sector, at 3.79% of the ADX total, and represented by six companies on the boards. Industrials, represented by 13 companies, came in next with a 2.48% share of the ADX's market capitalization, while the crowded insurance sector, with 17 companies featured, took up just 2.13% of the money available on the boards. What was left in terms of market capitalization was split between the consumer goods sector (1.89%) and investment and financial services (1.77%).