A SLEEK OPERATOR

Abu Dhabi 2017 | FINANCE | REVIEW: CAPITAL MARKETS

The Abu Dhabi capital markets are the extension of an overarching vision of the Emirate at the beating heart of international finance.

A millennium child, the Abu Dhabi Securities Exchange (ADX) came into being on November 15, 2000 through Local Law No. 3 of the same year that cemented its autonomous status, independent finance and management, as well as the supervisory and executive powers determining its operations. To expand its offering and footprint, the ADX has signed agreements with key financial institutions to deliver custody services, including the National Bank of Abu Dhabi (NBAD), HSBC, Standard Chartered, Deutsche Bank, and Citi Banking Group.

The prestige the ADX enjoys today in the international capital markets is also catalytic in meeting the economic and social goals of the Abu Dhabi government's Vision 2030. Philippe Ghanem, the Vice Chairman & CEO of prominent sector player ADS Securities, told TBY of the rapid pace of change since his firm opened its doors in 2010, and an advantage that the local capital markets have exploited. Namely, “Here in the region Abu Dhabi is a relatively new financial market, which does not have legacy issues, and, accordingly, we have been able to use regulation to support best practice and growth.” What is more, the UAE is a commercial gateway for the GCC, which can only gain traction as countries in the wider region expand their commercial footprints. “Abu Dhabi has emerged as the offshore wealth center of choice and we see massive opportunity for our asset and wealth management business,” Ghanem concluded.

The bourse facilitates the trading of securities including the shares of public joint stock companies, as well as corporate and government bonds, exchange traded funds, and financial instruments OK'd by the UAE Securities and Commodities Authority (SCA). Listed companies trade under the sectors of banking, real estate, consumer staples, investment and financial services, industrial, telecommunication, services, energy, and insurance. By end-2016 the MCap of companies listed on the ADX was at AED475 billion (2015 AED437 billion), where that of local firms was AED444 billion. For the year, July had seen a peak of AED482 billion.

Ratings and Accolades

In 2009 the ADX was dubbed an Emerging Market by FTSE, and two years later by S&P and Russell Investments. And two years after that, ADX also received EM status from the MSCI index and S&P Dow Jones, a passport to enhanced inward investment flows. In 2015, ADX picked up the Most Innovative Exchange GCC 2015 Award. And in 2016 the bourse garnered the 4th Middle East Financial Markets Excellence Award given annually by the Middle East Excellence Awards Institute. And in a pioneering moment for the ADX it received the ITP. Gov Award 2017 for its adoption of time-saving blockchain technology in eVoting, a first in MENA financial markets. The ADX also became a member of The Institute of International Finance (IIF), the first MENA regional bourse to do so.

Propelling the Vision

In 2016 an MoU was signed between the ADX and the Abu Dhabi Global Market (ADGM), the capital's international financial center located on the 114ha Al Maryah Island. The latter is a financial free zone established by Cabinet Resolution Number 15 of 2013 that buttresses the Emirate's long-term development plans. Ultimately a self-contained community, it will accommodate leading-edge financial and commercial enterprises overseen by three independent authorities, namely the Financial Services Regulator, the Registration Bureau, and the courts. Meanwhile, its high-end residential and leisure offering befits Abu Dhabi's international significance and investor appeal. This MoU, then, paves the way for bilateral cooperation on joint development of financial products and services further fine tuning Abu Dhabi's sustainable financial environment within the scope of Abu Dhabi Vision 2030.

Innovation-a Virtuous Circle

The ADX launched its new highly user-friendly website in 2016. Elsewhere, too, stock market participants were enriching the offering. ADS Securities launched OREX Mobile, which Vice Chairman & CEO Ghanem described as “the first-ever multi-asset smartphone trading application with full Arabic language functionality (designed) to enhance the trading experience for professionals and private investors.” Meanwhile, on a national level, the UAE's introduction of 5% VAT, by IMF calculations, is set to generate additional revenue comprising 1.5% of GDP, at roughly AED12 billion. As the IMF points out, this revenue will be directed to government services and infrastructure projects that in turn will be realized by listed companies.

The Landscape in 2016

The ADX general index closed 2016 at 4,546 points, marking a firm 5.55% YoY rise from the 2015 close of 4,307. The peak close of that year, seen in 2Q2016, was 4,637. Historically, the index peaked at 6,237.98 in April of 2005 and troughed at 1,001.81 in July 2001. And as of April 6 the benchmark index had shed 0.55% from the previous close to end at 4,615. As of that date the 52-week high and low were respectively at 4,715.05 and 4,174.71. The 50-day average volume printed at 114,527,800, and the one-month and 12-month index changes were at a respective 0.24% and 7.35%.

Investor Breakdown

By the end of 2016, the ADX had roughly 961,807 registered investors, with 3,874 issued compared to 8,192 a year earlier; 3,348 were issued to individuals and 526 to institutions. Of the total, 1710 were issued to UAE nationals, 245 to the GCC, 830 to Arab nationals, and 1,089 to all other nationalities. Global headwinds and the uncertainty brought by regional conflict and commodity prices in 2016 meant that where the total value of trades on ADX reached close to AED100 billion, net foreign investments were at around AED3.4 billion, down 41% YoY from the AED5.8 billion of 2015. Non-UAE investors bought 12 billion shares totaling AED25 billion and sold AED11.8 billion amounting to AED21.6 billion. Looking at the total value of trades, UAE investors accounted for the bulk, at AED51 billion. Among foreign participants, UK investors led with roughly AED10 billion, followed by US investors with AED7.5 billion, Jordanians with AED3.4 billion, Luxembourg investors with AED2.7 billion, and Saudi investors with AED1.8 billion. Thus for the year, non-UAE investors, making up 48% of the total value of trades executed on the ADX, had climbed 5% YoY. The volume of trades rose 6% YoY in 2016 to approximately 29 billion shares compared with 28 billion in 2015, where February's 5 billion shares traded marked the high water mark for the year. Average daily trading volume was at 118 million shares, up YoY by 7.2%. And meanwhile, the value of those trades, at AED49 billion, had slid 18% YoY, with the month of March printing the best performance of AED6.8 billion. The average daily trading value for the year was at AED197 million.

ADS Securities' Ghanem rather cosmically concluded that “Both Vision 2021 and Vision 2030 form a solid financial package in the long-run that will establish Abu Dhabi as one of the strongest financial services markets on the planet.”