Earlier this year, the National Bank of Abu Dhabi was granted the first ‘market maker’ licence. It was indeed a step in the right direction and a good start to stabilise the local financial market which had suffered intense speculation over the better part of the last decade, resulting in losses for investors, especially the smaller players.

Despite the importance of this step, it is by itself not enough to put a halt to the sharp fluctuations in prices of certain listed companies. The stabilisation process requires more qualified market-makers.

What has happened in the past two weeks reaffirms this fact, as share prices of some companies collapsed spectacularly, even exceeding a 70 per cent erosion within days. While the index has lost nearly 20 per cent from the highest levels it had reached, highly volatile scrips have precipitated the rate of decline.

Since May, all the signs have indicated that local and regional bourses may experience harsh adjustments, which if one looks at it is a natural development.

But what happened in the last two weeks go beyond a readjustment, as prices at just one counter dipped from Dh10 to sub Dh3. This was brought on as the value of share trading increased, meaning there was a mix of speculative activity and panic selling by retail investors.

At the same time, it must be noted that shares of companies with strong fundamentals, including leading banks, continued to resist the slide. Their declines, in contrast, have been limited to around 20 per cent off the peaks they reached two months ago.

This helped avoid a repeat of the 2008 scenario and strengthened confidence in the UAE’s two stock markets, clearly evident from the foreign investments that were net positive in the last month.

The local markets have certainly become more mature than five years ago, and a wider base of investors are taking action based on fundamentals.

Also, the upgrade to Emerging Markets status by MSCI has added depth to the UAE stock markets, which should in turn attract more domestic and foreign capital in the coming period.

Although July and August will see some fluctuations, the first-half financial results of listed companies are expected to be good in general. This will give an additional boost to their shares, and of banking scrips in particular. This year’s cash dividends too are expected to be better.

For this positive outlook to pan out, additional steps need to be taken by the Securities and Commodities Authority (SCA) by authorising new market makers.

This is because market stability in the long run requires additional stakeholders with the financial capacity necessary to maintain stability and bring about changes that reflect the strength of the financial markets and the local economy.

Such approaches will lead to a stronger link between the broader economic conditions and the stock market. The local economy is expected to achieve growth rates of 5 per cent annually in coming years, driven by high oil prices and the rapid growth of non-oil sectors. This will enhance the performance of companies, including listed ones, thus ensuring closer correlation with the economy.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.