Instutions are the new source of revenues for banks as retail investors turn away from the local markets.
Banks seek investors who are in it for the long-haul
Banks are turning to institutions to generate fresh revenues as retail investors shy away from playing the local markets, says a top official at Abu Dhabi's biggest bank.
The volumes of traded shares on the Dubai Financial Market are scraping past 80 million, compared with highs that touched 900 million before the Dubai World crisis took hold. On the Abu Dhabi Securities Exchange, volumes have settled at about 50 million.
"What we want is long-term investors who recognise long-term opportunities here and are willing to back this market for the next five years," Alan Durrant, the chief investment officer of National Bank of Abu Dhabi (NBAD) said yesterday. "If people are largely trading between each other, that's a zero-sum game."
The bank launched an exchange-traded fund in March to capture the institutional market and move away from retail investors.
Emirates NBD research puts the proportion of retail investors trading on UAE markets at about 60 per cent. But the absence of a catalyst moving the market has left traders in limbo and led to lack of liquidity and meagre volumes on both the Dubai and Abu Dhabi exchanges.
"It is a catch-22 situation," said Mr Durrant. "There is no liquidity so people don't trade and because there is no trade, there's no liquidity."
It has spurred NBAD to turn to fixed income, a core investment in other markets but relatively under-represented in the Gulf.
"It's a natural diversifier and … will calm a portfolio down in times of uncertainty," said Mr Durrant.
The possible promotion of the UAE to emerging market status, from its present ranking of frontier, will also boost local markets as the region casts its investor net wider, said Mr Durrant.
But Irfan Chaudhry, the investment strategist at Emirates NBD, maintained the importance of retail investors to a liquid market.
"You can increase the portion of institutional investors but you cannot deprive retail investors because they provide the interest that creates the liquidity," Mr Chaudhry said.
Day traders, who buy and sell small amounts and move shares regularly, are necessary to create volume, liquidity and interest from long-term institutional investors.
Analysts have said the exclusion of retail investors for the phone retailer Axiom Telecom's initial public offering (IPO) reduced the selling pressure on the stock for its first day of listing.
"Companies like to have a period of stability [in an IPO] but you need volume from retail investors to get this going," said Mr Chaudhry.
But thin volumes and lack of movement on the market have not deterred the region's day traders.
"In all honesty I'm doing it for myself," said Ismael Saeed, a trader at the Abu Dhabi Securities Exchange (ADX). "It's part hobby, part serious because you're still dealing with money here."
In the women's trading room of the ADX, a retired teacher spoke of the social, rather than commercial incentive for trading.
"I have fun with [trading] and spend the money on myself, or on water and electricity bills," she said. "There used to be a group of women here and we enjoyed chatting, but they've all lost their money and left."