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August 12, 2023 in FOREX

Manash Jain on what’s next for UAE equity markets

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Equity markets in the UAE have remained robust over the past few years, thanks to a continuing focus on IPOs and a firm economic outlook.

For example, in July 2023, the Dubai Financial Market reached an eight year high. This is a clear sign of widespread investor confidence in the UAE, thanks in part to determined efforts to increase liquidity and structurally reform.

UAE markets are outperforming other countries

The GCC (Gulf Cooperation Council)’s six-member economic bloc far outperformed other countries in 2022. Given that stock markets around the world dealt with their worst performance since 2008 during the same time period, the UAE’s strength stands out.

By increasing their product offerings, capital markets in the UAE have attracted strong internal flows of capital. And, as the UAE continues to attract foreign investment and implement economic infrastructure development strategies this looks set to continue.

It’s likely that the increasing number of IPOs (initial public offerings) in the UAE will continue to gain momentum over the next few years.

The region has attracted more investment from IPOs

A rapid increase in IPOs has gone a long way to support the strong performance of the equity markets. Furthermore, we’ve seen companies listed from a wide range of sectors including logistics, healthcare and utilities.

In 2022, Middle East IPOs raised in excess of $23 billion from 48 listings. If we compare this to 2021’s figures that showed just 20 listings raising $7.52 billion, it’s clear that the momentum is strong. In Q1 2023, Abu Dhabi alone has brought in listing proceeds worth $3 billion. This actually places it in third place globally.

The market performance on the Abu Dhabi Securities Exchange (ADX) has hugely increased sine 2020. Back then, the market was turning over around Dh 200 – 300 million a day. As of Q3 2023, the range has surged to Dh1 – 1.5 billion.

More private investment is necessary

In other words, we’re seeing the UAE market exchanges far surpassing anything they’ve achieved before. Now is the time for the region’s private investment infrastructure to mature, so that its markets can move to the next level of growth.

Markets in the UAE must secure a larger number of private-sector listings to do this, and the entire ecosystem needs to develop faster. By this, I mean the private investment ecosystem across the UAE, including late-stage capital investment, venture capital and private equity.

We are already seeing signs of this start to happen.

Diversification of investment opportunities in the UAE

The Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) launched during the first decade of the 21st century in order to encourage capital inflow to the UAE.

Since then, there are been a large number of listings across a wide range of sectors. However, property firms and banks have been dominant as the largest listings. All of this has helped to encourage economic growth in the region.

The next level of success for UAE markets will come from diversity and lots of different investment opportunities. All capital markets, in order to be successful in the long-term, need a strong framework for regulation and governance, reliable data flows and to facilitate liquidity and easy access in securities trading.

Hitting the balance between listed companies and investors

When a market becomes more attractive to companies in terms of wanting to list, the it becomes more attractive to investors – and vice versa. There is a cohesive effort going in in the UAE markets to reach this sweet spot so that there is a kind of virtuous circle between investors and listed companies.

Since 2022, both Dubai Financial Market and the Abu Dhabi Securities Exchange have both made progress in attracted IPOs from all kinds of sectors, from financial services and petrochemicals to real estate, food & beverage, utilises and healthcare.

Furthermore, ADX has launched more products including a derivatives market – this actually opened in 2021. The idea is that this establishes a framework for listing a greater number of exchange traded funds and special purpose acquisition companies.

Resilience of UAE economy attracts global investors

The UAE economy in general has proved to be resilient over the last few years, at a time when much of the world is struggling with the ongoing impact of the pandemic, issues caused by climate change and soaring inflation.

Investors from all around the world are responding positively to the UAE’s economic success and resilience. For example, in 2022, ADX attracted a record breaking foreign investment of Dh 24 billion – a 54% increase.

However, it needs to be noted that many direct listings and IPOs since around 2020 have been almost exclusively connected with Government linked entities. This is because these entities are at the scale and have the kind of scale that appeals to global investors.

Turning attention to tech innovation investment

In order for the markets in the UAE to get to the next level and attract a far wider and more diverse range of listings – particularly for high-growth entities – it’s essential that a successful private investment market is created. This is in order to speed up the development of companies into viable candidates for IPOs.

A good example of where huge improvements need to be made comes with the level of tech innovation into the UAE markets and the wider MENA region. While the markets are starting to cultivate tech innovation investment, the entire region raised just $18 billion for growth capital in 2022.

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