By the end of the trading week on January 10th UAE shares had risen for eight consecutive week, largely due to confidence in fourth quarter results that are expected to be posted in the coming weeks. Trading volumes and market capitalisation have increased significantly since September with many of the banks dominating gains, as well as giants such as the telecommunications monopoly Etisalat. Banks have gained from the repatriation of funds from the US and Europe since September 11th and expectations of consolidation from reforms to be implemented after Al Qaeda funds were seen to have passed through the UAE. The UAE Federal National Council approved the draft money laundering law on December 25th- it remains to be signed by President Sheikh Zayed bin Sultan al-Nahyan- and banking financing deals have grown in value in recent months.
The UAE operates three different stock markets, the Dubai Financial Market and the Abu Dhabi Securities Market, as well as the unofficial over-the-counter (OTC) market, with the last accounting for much of the trade volume and market capitalisation, largely through Etisalat. Trading value on the three floors increased by around 50% in 2001 to $572m and total market capitalisation rose by around 18% to Dh94.958bn ($25.8bn) by the end of the year from Dh80.45bn ($21.9bn) at the start of the year. Interestingly the vast majority of this rise occurred after September 11th with the capitalisation standing at Dh80.658bn ($22bn) on that day.
This rise is largely explained by investor expectation that Arab funds would be brought back to Arab Gulf markets, of which the UAE is the most liberal. Other Arab stock markets, such as in Egypt, which has fallen by over 40% in 2001, are less attractive. Furthermore, as interest rates have fallen in the US as the federal Reserve tries to bring the US economy back into shape, Gulf investors have seen the benefits of investing at home. In addition UAE investors were buoyed by expectations of positive fourth quarter results from blue chip companies.
This rise in trading volume in all three markets has fallen off slightly in the last couple of weeks after comparatively heavy trading and steep share price rises of 10% to 35% at the end of 2001. Trading volume for the week ending on December 27th was up by 270% over the previous week at $48.6m, but has fallen in the subsequent two weeks, although share prices have continued to rise. In the week ending on January 3rd- a week shortened by the one day New Year holiday- turnover was $44.1m and the following week ending January 10th it fell to $27.7m.
One of the largest movers in recent weeks has been the telecommunications company Etisalat, whose shares closed at Dh115 on January 10th. Its stock, which dominates the OTC market although the majority of the company is state-owned, has risen by around 28% since October 10th and was further bolstered by the announcement on January 8th by the UAE Minister of Communications Ahmed Al Tayer that the company's profits rose by 15% in 2001 from the previous year to a net profit of Dh2.723bn ($724m). The company has sought a listing on the Abu Dhabi Securities Market (ADSM), which, once achieved, should see a boost in its trading activity. Company figures indicate that by the end of 2001 mobile penetration rates in the UAE- Etisalat is the sole provider- had reached 62%, with the number of subscribers rising by around 60% every year for the last five years. From March it will begin tests on 3G mobile technology with a view to introducing the system commercially by the end of 2003.
Some of the country's largest banks have also contributed to rising trade and values on the ADSM. Shares in the country's largest bank the National Bank of Abu Dhabi have risen by around Dh60 to Dh750 in the last three weeks, and the second largest Abu Dhabi bank, The Abu Dhabi Commercial Bank has risen Dh40 to Dh510 over the same period. On the Dubai Financial Market (DFM) the real estate company Emaar Properties as a large player, helped by the decision taken by its board on January 2nd to buy back 10% of its shares. By mid-February the company will also have decided what form its proposed bank will take, be it commercial, investment or Islamic activities- or a combination of all three.
Meanwhile the UAE banking sector has been given a boost in recent weeks by the passage of the draft law against money laundering through the Federal National Council and its expected implementation in January. A total of 14 bank accounts have already been frozen in the UAE in connection with the September 11th attacks, and additional measures are expected to further reduce illegal financial activity in the country. Visitors entering the UAE will have to declare to customs any funds above Dh40 000 ($10 900) and insurance companies will have to notify the Ministry of Economy of any extraordinary transactions.
Most of the funds used by the September 11th terrorists were transferred from the UAE to the US in the months prior to the attacks, prompting the UAE authorities to take a closer look at the regulations covering financial activities. The country is also on the black list of the watchdog Financial Action Task Force (FATF) for failing to meet its anti-money laundering standards, although UAE officials hope that this will change in the coming months.
The UAE banking industry has also seen growing activity in financing loans in recent months. The most recent is the largest corporate loan in the UAE's history with a number of unspecified banks providing a Dh1.3bn ($354m) loan to the Al Futtaim Trading Group, according to the Gulf news on January 5th. Late last year Dh600m ($163m) was provided to the Bur Juman Centre project and Dh400m ($109m) to the Al Ghurair City project.