Low trading volumes are an emerging problem for Gulf bourses including the Dubai Financial Market (DFM), whose own shares are traded as DFM Company. Yesterday, Deutsche Bank downgraded DFM Company, citing an uncertain outlook for sales of shares listed on the bourse. Trading volumes for companies on the DFM speak for themselves. Average daily volumeon the exchange this year is 170 million, down from the daily average of 445 million shares last year, according to data from the exchange.
"The likelihood is that the IPO [initial public offering] pipeline will take time to materialise, given depressed market multiples," said Rahul Shah, an analyst at Deutsche Bank. "Weak trading conditions are also likely to stymie management's hand in relation to new revenue sources such as custody fees and industry consolidation. "Although it is still early days, it appears that migration of retail investor trading activity on to NASDAQ Dubai could take time."
The value of trades conducted on the DFM is the key driver of the bourse's revenue. The performance last month disappointed investors. So far this month it has been lower still, and trading appears unlikely to improve significantly in the near term. Trading is typically higher at the end of summer, but the seasonal upturn has not so far materialised this year. Even if IPOs emerge, the bourse will struggle to attract new listings until the market's liquidity and valuation improve, Mr Shah said.
On the positive side, a merger of the DFM with the Abu Dhabi Securities Exchange could add significant value. "Consolidation could make sense in terms of pooling liquidity, which would help transaction costs and increase trading velocity and reducing overheads, he said. Shares of DFM Company rose 0.6 per cent to Dh1.47. The stock has declined almost 22 per cent this year. firstname.lastname@example.org