Like the majority of stock markets around the world, the Abu Dhabi Securities Exchange (ADX) has endured an element of uncertainty since the onset of the global financial crisis. However, with the index on an 11-week high, and positive trading signals for the first half of the year, the capital's bourse can look to the future with a degree of optimism.
The emirate's index, buoyed by a surging Emirates Telecommunications Corp (Etisalat), climbed 0.5% to 2897 points on August 31, its highest finish since June 15. While other reasons for sanguinity came from the fact that the ADX index, market capitalisation and volumes all increased in the first half of 2009, influenced by an appreciation for the positive long-term economic outlook for Abu Dhabi, according to Tom Healy, the chief executive of the ADX.
Statistics released in mid-July showed trading volumes leapt 39% in the first half of the year, while the ADX index and market capitalisation are up 10% and 12%, respectively. The increase in activity was attributable, in part at least, to the return of foreign investors, which accounted for 30% of trading.
This resurgence of non-GCC participation is a welcome shot in the arm for the bourse. During the global credit crunch – and the ensuing financial morass in which many stockholders found themselves – a horde of foreign investors repatriated their money to meet domestic obligations.
In the UAE matters were made worse due to a significant amount of speculative cash, known as "hot money", entering into the markets in 2007 and early 2008, with the aim of making a quick profit on the anticipation of the de-pegging of the dirham from the dollar. Once this began to look like a failed gamble, the hot money flowed out.
Though the majority of this capital still remains overseas – foreign investors owned only 4% of the value of stocks listed on ADX in the first half of this year – there is an increase in trading from non-GCC investors, amounting to around 30% of all trades. This accounts to buying and selling shares worth nearly $4bn, leaving them with net purchases of $163m worth of shares, according to the ADX.
As it currently stands, UAE nationals remain the highest owners of shares by value, with $59bn worth of shares, 92.5% of the total value owned.
The good news for traders at the ADX is that volumes have picked up steadily in the first half of 2009 compared to the second half of 2008. Towards the end of last year the ADX witnessed a fall in volumes. However, since the beginning of 2009 volumes have risen 39% to over 20bn shares, from under 15bn.
"As we would expect, given the lower values of shares, the value of trading is down by 48%, with shares worth $9.8bn changing hands in the first six months of this year compared to $19bn in the latter half of 2008," Healy told OBG.
Due to the global economic uncertainty there has also been a slowdown in initial public offerings, as Abu Dhabi's companies put capital-raising plans on hold until financial markets stabilise. Green Crescent Insurance Company was the only firm to list in the first half of 2009, bringing the total amount of companies to 66, the vast majority of which are national.
The combined market capitalisation of the ADX is over $77bn, a 12% increase on the end of 2008. Etisalat retained its place as the largest company listed on the ADX in terms of market capitalisation, followed by the National Bank of Abu Dhabi. In terms of trading value by sector, real estate demonstrated its supremacy again. Aldar, a government-backed real estate developer, was the most traded, with over $2.3bn worth of shares changing hands. Sorouh, another property developer, came second with $1.7bn, followed by RAK Properties, Dana Gas and Aabar Investments, respectively.
The number of institutional investors on the ADX also increased by 7% in the first six months of this year. Attracting such investors is a central tenet of the ADX strategy because they bring with them stability and experience to the market.
Healy is confident that Abu Dhabi possesses the right characteristics to succeed in this sphere. He told OBG that, "Abu Dhabi's economy has a very positive outlook for the next 20 years, as outlined in the Economic Vision 2030 plan. It has strong fundamentals, which tick many of the right boxes for investors, particularly the large foreign institutions looking for high growth in emerging markets."