Fresh call to revise UAE market rules

Fading investor confidence and declining trading volumes on the UAE's markets have prompted a fresh call for reform from a trade group that represents financial services firms here.

Some local companies are opting to list in overseas markets such as London, Hong Kong and Singapore instead of going public in the country. Ben Job / Reuters
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Fading investor confidence and declining trading volumes on the UAE's markets have prompted a fresh call for reform from a trade group that represents financial services firms here.

The country should overhaul its market rules to address these issues and retain the interest of institutional investors, said Arwa Hamdieh,a co-founder of the Financial Services Association (UAE).

"The capital markets framework in its current form is not as attractive as it could be to long-term international investors looking at the UAE," she said. "Now is the time to look at and address the framework as a whole."

The UAE's markets are becoming less attractive for initial public offerings, given alternativessuch as London, Hong Kong and Singapore, said Ms Hamdieh.

Public criticism of loopholes in disclosure regulations and fears that the Emirates will again miss out next month on a reclassification by the MSCI from "frontier market" to "emerging market" have coincided with a fall on Dubai's main bourse. That decline has left this year's gains all but wiped out.

Amid a broader sell-off on global markets, the Dubai Financial Market (DFM) General Index fell 2.6 per cent last week to 1,475.58, with the index's fall from its March peaks taking it to the brink of bear territory.

About half of the index's gains this year are attributable to a sharp rise in Arabtec shares, which have shot up 83.6 per cent since the start of the year.

But last week's revelation that Abu Dhabi's Aabar Investments had been accumulating a 20.9 per cent shareholding in the construction giant sparked rare public censure from politicians and industry bodies.

Their criticism came only a few months after irregularities surfaced at the Abu Dhabi Securities Exchange, as the share prices of Aldar Properties and Sorouh Real Estate began moving in tandem ahead of an announcement in March that the two would seek to merge.

Word of an investigation launched into the unusual movements was denied by exchange officials.

With the UAE and Qatar up for review by MSCI next month for possible inclusion in the Emerging Markets index, many traders have warned that the Emirates may again miss out on being upgraded.

However, bankers said the months ahead could yet provide catalysts for trading activity in the Gulf.

"The next few months are a critical time for the region, regardless of the global dynamics being played out in Europe and elsewhere," said Peter Gotke, the vice president and head of depositary receipts at BNY Mellon.

"An upgrade by MSCI would underscore the readiness of the region for the next phase of growth," Mr Gotke said.

Traders and investment bankers said last week that the UAE's chances were slim, noting that the Emirates had done little to alter its market infrastructure since its last failed bid for an upgrade in December.

New rules enabling short selling, market making and securities lending - which MSCI said could improve the UAE's chances for inclusion - have been put on hold.

Nevertheless, some experts are more sanguine about the UAE's chances.

"I am more confident at this juncture that the UAE will be upgraded to emerging-markets status by the MSCI this coming June, with many affirmative actions having taken place across regional markets," Mr Gotke said.

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