Abu Dhabi: — The Abu Dhabi Securities Exchange (ADX) said it was eyeing expansion through the launch of a derivatives market in the next few years to diversify financial instruments and raise the market’s profile.
In an interview with Gulf News, Rashed Al Baloushi, chief executive officer of ADX, said that one of the exchange’s strategies was to bring more institutional investors to reduce volatility and support new IPOs (Initial Public Offerings).
Currently, 35-40 per cent of daily trading values come from institutional investors, and ADX is hoping to raise that figure.
“If you ask me how ADX would look five years or even three years from now, I would tell you ADX would be having equities with bonds and sukuk; ETF (Exchange Traded Fund) would be strengthened; rights issues would be implemented more; and rates would be available to ADX. Hopefully, these packages will come together with the derivatives market,” he said.
In 2013, stock market officials said they were looking for the right time to launch a derivatives market after initial plans had to be halted due to the global financial crisis. However, plans for the proposed Gulf Derivatives Exchange are yet to come to life.
Diversification
Al Baloushi said that ADX was also looking to grow by diversifying the sectors of listed companies, and bringing in more family businesses. Both Dubai and Abu Dhabi stock markets are dominated by banking, real estate, and insurance companies.
“We looked at the environment in the UAE — Abu Dhabi specifically — and found out that four sectors are missing: education, health care, retail, and petrochemicals. We are meeting with private companies in these sectors, and the feedback we got is very positive. I see a market in the near future with all these sectors, but it’s up to them when to list,” he said.
The CEO added that the exchange was in talks with family businesses that have the potential to list. He did not disclose details about upcoming IPOs, though, saying that it was up to the companies to announce listings.
“Initially, they had issues with the law mandating 55 per cent to go public, but this is solved now because they can list 30 per cent, and keep 70 per cent of the wealth, so that’s another factor to encourage listings,” he said.
Al Baloushi said that corporate governance and book building were other issues that family businesses have to face, especially if they consider listing abroad, and the only solution was raising awareness.
“The process of book building today is fixed. It’s not wrong, but international practices are not dealing with it that way. What we try to do is to start awareness on book building, and we always try to link them with the firms that implement book building.
We show them that at the end of the day, you do the due diligence but then you bring a company to do the supply and demand,” he said.
MSCI upgrade
In May 2014, index compiler, MSCI, added nine UAE companies to its emerging market index. The upgrade included four Abu Dhabi-based companies (Aldar Properties, National Bank of Abu Dhabi, First Gulf Bank, and Abu Dhabi Commercial Bank), which brought significant liquidity into ADX.
In June 2014 alone, ADX saw Dh1 billion worth of foreign investments. A year later, MSCI increased the weight for the UAE index from 0.65 per cent to 0.72 per cent.
“Today, being part of the MSCI means that a wider type of investors, [and] a larger number of institutional investors would look at us. It would promote UAE, Abu Dhabi, and ADX, so it brings recognition,” Al Baloushi said.
He added that the MSCI upgrade assures international investors that the exchange is abiding by best practice, has enough liquidity, and follows trading laws.
ADX has already been on a road show to New York, and is scheduled to go to London this year, to attract even more international investors.
From a technical standpoint, ADX is also eyeing growth, with plans to update its website by the end of this year. The exchange is also set to launch new technology to help investors in the next edition of Gitex Shopper.
