Dubai: The UAE's capital markets scene needs to attract more institutional investors to ensure long-term growth prospects, analysts said yesterday.
The Dubai Financial Market (DFM) earlier this week reported an increase in the number of new investors registering to trade on the bourse in the first quarter, rising by 93.5 per cent to 2,613, up from 1,350 in the same period last year.
However, retail investors continue to dominate the bulk of trading activity and some analysts believe more investment is required from overseas to ensure healthy returns and long-term prosperity.
"It [the figures] are overshadowed by the fact that institutional investors were not favourably represented," said Akber Naqvi, executive director at Al Masah Capital. "But given the markets have come from the depths of stagnant volumes, any new infusion is welcome be it retail or institutional."
The DFM said investors showed mounting enthusiasm to obtain a DFM Investor Number in the first three months of the year amid "re-ignited sentiment towards listed securities", which in turn led to an 87.7 per cent jump in trading value during the first quarter to Dh20.47 billion, up from Dh10.91 billion in the same period in 2011.
According to Naqvi, institutional involvement is a necessity for the development and greater sophistication of local equity markets. But he also said it is good retailers are involved because in this region, retailers can trade like institutions due to personal liquidity and oil wealth.
"The remnants from last year's Arab Spring are still strongly prevalent and will greatly influence future M&A thinking," Naqvi said.
Still fragile
"Investor and market confidence is still fragile and will require at least a couple of quarters of steady growth before we start seeing greater M&A activity."
The region's mergers and acquisitions (M&A) scene has also witnessed a slow start to the year with a report released by Ernst and Young yesterday showing the total value of M&As announced in the Middle East and North Africa (Mena) region dropped by 40 per cent to $8.5 billion (Dh31.2 billion) in the first quarter compared to $14.1 billion for the same period last year.
"Regional investors continue to dominate the M&A market and continue on their path of large international investments for solid assets. This trend will continue," said Phil Gandier, Mena Head of Transaction Advisory Services at Ernst and Young.
"A total of 19 sovereign wealth and private equity deals took place in first quarter 2012, with ten deals in March alone. This could mean that private equity players, who are usually the first movers in M&A, are taking comfort from upward revisions of regional economic growth projections."
