Interview: Rashed Al Baloushi

How will the UAE’s recent upgrade to “emerging” market classification impact local capital markets?

RASHED AL BALOUSHI: The UAE’s upgrade from frontier-market status will have a profound impact on the local markets. While it reflects a growing realisation of how far our economy and our financial markets have developed in recent years, it also confirms our progress in making the improvements and changes to align with the views and practices of the international investment community. This means that infrastructure, services and the legal framework are continuing to be developed to the highest standards. In order to meet with the criteria of the MSCI, Standard & Poor’s, Dow Jones, FTSE and Russell Investments, regulations allowing short-selling have been put into place to activate market makers and liquidity providers, and margin trading has already gone into effect. Moreover, with the overall aim of diversifying our financial services, we have recently enhanced the level of our technical infrastructure through introducing the delivery-versus-payment system and upgrading our trading platform to X-Stream. Provided by Nasdaq OMX, and functional across the widest set of asset classes available, X-Stream is a multi-asset trading solution that combines performance with adaptability. It is designed to integrate trading as our marketplace develops with offerings of new products or market models. Such operational improvements will better align our exchange with international best practices followed by other leading global exchanges. Another benefit of positioning Abu Dhabi as an exchange centre is that the ADX and the brokerages present in the emirate have, and will continue to receive, a positive flow of inquiries from international investors. The ADX is now on the international radar as we continue to gain the confidence of foreign institutional investors. Another key outcome is the increase of liquidity, which according to HSBC is set to attract initial inflows of approximately $500m. This added liquidity will boost the presence of institutional investors.

To what extent are greater levels of local institutional participation necessary to develop more active and stable capital markets?

AL BALOUSHI: The increase in investment naturally leads to greater emphasis on the economic fundamentals. The presence of institutional investors, either foreign or local, is essential if growth is to be sustained in the long run. A lack of participation by local institutional investors has created a structural problem, with a large amount of retainers registered in the system. This vacuum needs to be filled in order to aid economic growth.

If we are to continue encouraging institutional investors to play a greater role, we must continue developing our rules and regulations, as well as introduce new financial instruments. We need to see more equities and initial public offerings in addition to further developments in exchange-traded funds and bond markets. The stock market must also expand available financial instruments and maintain transparency.

In what way can the Abu Dhabi Global Market (ADGM) enhance the domestic market?

AL BALOUSHI: The introduction of a financial free zone (FZ) on Al Maryah Island will have a positive impact on the domestic market, as well as on Abu Dhabi’s positioning as a global financial services centre. The ADGM will attract large institutional investors and enhance the quality of financial services available in the emirate.

In terms of the effect it may have on local capital markets, harmonisation between the local onshore sector and the FZ sector is required. Obviously, the FZ will have a different set of rules, regulations and procedures, therefore the relationship with the onshore sector will require the alignment of these procedures to facilitate interaction. Collaboration between large players in the FZ who want to engage with the onshore market will be necessary, and both sectors should benefit from such partnership. The extensive market reach of any collaboration that may occur between the two sectors will give Abu Dhabi a brighter spotlight across the region.