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UAE, Dubai 2015 | FINANCE | REVIEW: CAPITAL MARKETS

Despite prevailing challenges, the DFM, the DMCC, and NASDAQ Dubai collectively position Dubai as an international hub of trade and investment.

Fortunately located between the two key capital markets of Singapore and London, Dubai has been leveraging its time zone difference and sleek financial sector to capitalize on regional and global liquidity and commodity flows. Nonetheless, the Emirate's mission to become a global financial center powered by the three main trading platforms, the Dubai Finance Market (DFM), the Dubai Multi Commodities Centre (DMCC), and the NASDAQ Dubai, has been temporarily dented by ongoing commodity uncertainty. In 1H2014 the Dubai stock market registered close to a 200% rally, rendering it the world's top performing financial market. Spirits were also buoyed by the Emirate's winning of the prestigious World Expo in 2020, confirming the UAE's general status of safe haven in a turbulent region.

Dubai Finance Market (DFM)

Despite initiation by decree in 2000, the DFM inauspiciously saw active trading on its secondary markets in 2007—just short of the global financial crisis. However, it has bounced back since 2012, amid active interest in in equities, bonds, and sukuks, among other instruments. The DFM has 64 equities, representing a total market capitalization of $87.8 billion at YE2014, up 24.3% YoY.

During 2014, the markets of the UAE were upgraded to emerging market status from frontier market, gueling investor appetite, as investment in-flow to the DFM posted at $1.1 billion for the year with 27,000 new investors joining the pool of over 800,000 investors, according to the DFM.

It may seem distant today, but oil, too, had at the time averaged at over $100 a barrel for three consecutive years running, in turn fueling infrastructure spending. The benchmark Dubai Financial Market General Index (DFMGI) struck a record high of 5,374.11 on May 6, 2014, but by December 11, 2014 had experienced its heaviest daily loss of five years—down 7.4%, having shed as much as 8.7% in intraday trading—as oil prices hit $64.21 per barrel, thus over 40% down from the $115 peak of June. Property developer giant Emaar Properties, alone accounting for 18% of the DFMGI, posted a 9.1% drop, with investors recalling the Central Bank's cautionary use of the “B” word regarding the property market. As of March 16, 2015 on a one-week basis, the DFMGI had lost 6.19%, and 8.22% on a monthly basis. Yet on a three-month basis it had gained 14.13%, and while it had lost 13.29% for a 1-year period, it had gained 109.07% over a 3-year stretch.

For 2014 the DMF posted a net profit of $206.7 million, notably up from $77.5 million in 2013. Meanwhile, trading saw a daily average value of $408.4 million, up 136.7% YoY, from $174.8 million in 2013. Total trading value for the year soared 138.6% to $103.4 billion compared to $43.5 billion in 2013. The daily average number of traded shares rose 25% to 639.5 million shares in 2014 up from 510.7 million shares in 2013. The DFMGI rose 12% to 3,774 points at end-2014 from to 3,369.8 points at end-2013. The banking sector led the pack on a 32.3% rise followed by Real Estate and Construction, up 17.6% and Industrials up 17.5%. In contrast, the Services, Insurance, Telecommunication, Consumer Staples, Financial and Investment Services, and Transportation indices respectively shed 54.6%, 29.4%, 24.3%, 16.2%, 6.4%, and 5.6% for the year. The value of shares traded for the period reached $103.9 billion, up 138.6% YoY. The number of shares traded climbed 26.2% to 160.5 billion shares during compared to 127.2 billion shares in 2013. The value of stocks foreign investors purchased in 2014 reached $46.1 billion at 44.4% of total traded value. What they sold for the period printed at $45 billion, at 43.3% of the total traded.

IPO-a-go-go

The DFM saw a renaissance of IPOs in 2014 as four new public joint-stock companies—Marka, Emaar Malls, Amanat Holding, and Dubai Parks & Resorts were listed. According to Gulf Business UAE asset management firm Daman Investments is poised to receive regulatory approval for its IPO. The company had sold a 22.7% stake to private investors via a share placement back in 2012, valuing it at $120 million.

Further ahead, diversified Gulf-based investment group Dubai Investments has earmarked up to three group companies to float in 2016—financial services and property, and also district cooling firm Emicool—according to Reuters in mid-March 2015. In 2014 the holding posted a huge 63% climb in annual profit to $364.8 million.
Notable among recent commercial bond activity was of the listing in late September 2014 of Agricultural Bank of China's $163 million bond on NASDAQ Dubai. China's third largest bank by assets became the first Chinese issuer to list a bond on an exchange in the MENA. ABC had gone public in 2010 in China, in what became the world's juiciest IPO by value at $22 billion.

DMCC

Established in 2002, the Dubai Multi Commodities Centre (DMCC), located at the DIFC, epitomizes Dubai's commitment to presenting comprehensive financial instruments to a global audience. In June 2014 it was dubbed 'Best Free Zone of the Year for SMEs - Middle East & Africa' and 'Best Free Zone of the Year for SMEs – UAE' in the Financial Times' global fDi Magazine Middle East Free Zones of the Year rankings and awards for 2014/2015. Currently, 70% of the DMCC's free zone members are SMEs, which rub shoulders with household name corporations. With over 9,000 companies licensed to operate in the zone, the DMCC has steadily built up its presence on the international commodities market, especially in the categories of gold and diamonds. In 1H2014, some $3.37 billion in rough-cut diamonds were exported from the zone, placing Dubai on par with Antwerp, New York, and Mumbai.

Yet it is gold that shines brightest, as in 2013, close to 40% of the world's physical gold trade was realized via Dubai, whereby the total value traded rose to $75 billion, from $70 billion in 2012 and just $6 billion in 2003. The Emirate also registered an annual trade volume rise of 73%, to 2,250 tons of gold. Underpinning the DMCC's operations is the Dubai Gold and Commodities Exchange (DGCX), established in 2005 as the first multi-commodity derivatives exchange in the MENA region. Derivatives contracts cover a wide variety of instruments, including gold, silver, copper, currencies, equities, hydrocarbons, and related downstream hydrocarbon products. In gold, the 0.995 purity Dubai Good Delivery Standard has been established. Other notable commodities include tea, pearls, base metals, and a range of agricultural commodities, as the DMCC leverages synergy with the Pakistani and Indian economies.

The DMCC also promotes Islamic finance in the commodities arena, with online exchange DMCC Tradeflow, enabling over 900 Commodity Murabaha transactions in 1H2014, exceeding $200 million. Meanwhile, the DGCX launched its physically deliverable polypropylene futures contract in February 2014; the first plastics contract launched in the MENA region. In April 2014, the Emirate's regulators issued the “Standard for Issuing, Acquiring, and Trading Sukuk,” a benchmark for Dubai's local Islamic economy activity.

NASDAQ Dubai

Based inside the DIFC, the NASDAQ Dubai is the international financial exchange in the Emirates and has reasserted itself equity trading. In October 2013, the IPO of Bank of London and the Middle East (BLME) was the first on the NASDAQ Dubai since 2009. The British-based, sharia-compliant bank listed 195.7 million shares on the exchange, giving it an implied MCap of $510 million. This was followed in April 2014 by Emirates Real Estate Investment Trust (REIT) through an IPO valued at $175 million—the first REIT listed in the GCC region. Currently, nine stocks are listed on the equity market, two being GDRs. Most recent, was the listing in March of 2015 of Orascom Construction, headquartered in the DIFC, which regulated by the Dubai Financial Services Authority (DFSA), is a financial free zone established in Dubai. Orascom Construction was created on March 7th, 2015, through the demerger of the engineering and construction business of OCI NV, listed on Euronext Amsterdam. Chairman of NASDAQ Dubai Abdul Wahed Al Fahim explained that: “Nasdaq Dubai offers issuers all the advantages of an international listing, from a base in the business and finance hub of the Middle East, including unique global visibility, recognition, and investor accessibility.”

NASDAQ Dubai has seen promising performance in the sukuk arena, with airline flydubai listing a $500 million inaugural sukuk in November 2014, marking the 18th sukuk listed on NASDAQ Dubai since early 2014. The event was emblematic of Dubai's ranking among the world's three greatest venues for sukuk listings, where nominal value on its two exchanges as of January 2015 was at $24.05 billion. And as Hamed Ali, NASDAQ Dubai CEO explained in a TBY interview; “In total we attracted $14 billion worth of sukuk into the exchange […] looking at the average subscription interest on that $14 billion, it was 5.5 to 6 times over the average subscription.