Dubai Financial Market Company, the only publicly listed bourse in the region, posted a 31 per cent drop in second-quarter profit as investor interest and trading volumes continued their prolonged decline in the UAE.
Net income reached Dh10.2 million (US$2.7m) in the quarter that ended on June 30, the bourse said, compared with Dh14.7m in the same period last year.
The company's profits have been sinking ever since access to credit became more difficult and asset values diminished in the face of the global financial crisis that began in 2008.
At the same time, investor confidence was all but wiped out in the UAE as retail investors, which made up the majority of trading volume until then, retreated in droves.
"Their profits keep declining," said Anastasios Dalgiannakis, the head of institutional trading at Mubasher Financial Services in Dubai. "The most important question is how do you get retail investors, who make up 80 per cent of the market, back."
The big reduction in trading volumes has had a domino effect on the market. As interest in trading declined, so too did companies' interest in listing shares on the market.
The Dubai Financial Market has not had an initial public offering since Drake & Scull International in 2009. Abu Dhabi Capital Management, an alternative investment company, and NMC Health opted for listings on the London Stock Exchange rather than a UAE bourse. Both companies cited liquidity as a main concern.
A share sale "of a key asset in Dubai, even if it is a small stake of Emirates Airline, or the airport's duty free, would be a strong catalyst and bring money back to the stock market", Mr Dalgiannakis added.
Brokerages, whose bread and butter income is from trading commissions, have also been hurt as volumes crashed on the withdrawal of investors.
There are 51 securities firms currently in operation, down from 110 two years ago.
Making matters worse, trading fees in the country are at a premium to the bourse's regional peers. The Dubai Financial Market Company takes a standard fee of 15 basis points. By contrast, Saudi Arabia's Tadawul, the largest and most diversified stock market in the region, charges a market fee of just 1 basis point.
A merger of the UAE's three exchanges, the DFM, the Nasdaq Dubai and the Abu Dhabi Securities Exchange, would help to reduce costs and alleviate many of the financial and infrastructure challenges currently related to investing on the bourses, Mr Dalgiannakis said.
Sultan Al Mansouri, the Minister of Economy and the chairman of the UAE market regulator, said in March he expected a decision on a potential merger to be made by the end of the year.
"If the DFM merges with the Abu Dhabi Securities Exchange, from a foreign perspective, they would be more inclined to invest in one bourse, with more listings and the same rules," said Mr Dalgiannakis.
MSCI, the indexes of which are tracked by investors with about $3 trillion in assets, in June delayed a decision until December on whether to upgrade the country to emerging markets status from frontier.
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