Analysts expect trading on UAE exchanges to pick up this week as the country's addition to a major global stock index approaches. The FTSE will add the UAE to its Global Equity Index Series as a secondary emerging market next month. While the move was announced almost a year ago, the upcoming inclusion of listed companies in the UAE was something to watch, said Ali Salaam, the director of MENA equities at Credit Suisse in Dubai.
"There's reason to be optimistic," he said. The return of fund managers from their summer holidays could also prompt a rise in market activity, he said. "People will be getting back to their desks, and there may be activity, either exaggerated on the upside or on the downside," Mr Salaam said. "They may come back and say 'I don't like this market and I want to sell it', or 'I like this market and I want to buy it'," he said.
Brokers also say a seasonal uptick may be on the way soon for local markets because rallies have often started in September. Trading volumes have been thin in recent weeks, and the UAE's main stock indexes have been flat for some time. Some stocks have occasionally traded at high volumes this summer, but prices have changed little. Against that backdrop, brokers say more trades are being done between large investors outside of the public markets.
In an environment of low volumes, they say, trading on the exchanges can be difficult because a single trade can cause a stock to hit its daily price ceiling or floor. In the UAE, there are regulations in place to limit the amount a stock can rise or fall in a single trading day. "It is very common in low-volume markets," Mr Salaam said. "Because you can't go to the exchange, you have to go out fishing for private transactions" in which brokers match buyers and sellers. "They use brokers like us, or other people who have connections on either side, or go to an institution that wants to buy a specific stock."
After such transactions, the parties file trading documents with the exchange. Because the trades are classified as over-the-counter, the exchange publishes the transactions without naming brokers. The trades have no effect on market prices. "Trades in the market are now usually done through cross-buying and selling", where brokers negotiate with buyer and seller, said Saad Chalabi, an institutional trader at AlRamz Securities.
Such activity is one example of numerous ways in which brokers are trying to cope with thin trading and reverse a stretch of declining revenue. Many brokerages have gone out of business in the past year because of inactivity on the markets. "What is happening in the market is that the trades that occur are a result of several weeks of preparation," said Rami Awwad, the operations manager at Al Awael Securities in Abu Dhabi. "Because it's all negotiated privately, and not on the market, it is also less costly for both the client and brokers."