x Abu Dhabi, UAE Friday 21 July 2017

UAE markets could use a Big Bang

The country's stock exchanges have a had a turbulent time. Nasdaq Dubai's chief executive Jeff Singer explains why he thinks the country's capital markets need an overhaul, the challenges that await and what should be done.

Jeff Singer, the chief executive of Nasdaq Dubai. Jaime Puebla / The National
Jeff Singer, the chief executive of Nasdaq Dubai. Jaime Puebla / The National

The country's stock exchanges have a had a turbulent time and some wonder if they will ever return to the boom years enjoyed before the global financial crisis. Nasdaq Dubai's chief executive Jeff Singer explains why he thinks the country's capital markets need a radical overhaul

The UAE has been experiencing a capital market trauma.

Equities traded value on its stock exchanges dropped nearly 90 per cent last year from 2008 levels and the major indexes fell 50 per cent or more.

There has been an IPO drought on UAE exchanges. Before 2008, subject to the usual ups and downs, the markets were active and many investors made significant returns.

Now people are wondering how the UAE can return to those halcyon days. I am optimistic that it can.

The markets have begun this year positively and I hope this trend continues. But to create durable, long-term improvements will require decisive action, as radical in its own way as the "Big Bang" structural reforms that restored dynamism to the City of London in the 1980s.

The boom in the UAE markets a few years ago partly reflected real and solid growth in sectors such as property and finance. However, other factors pushed prices up beyond realistic levels. These included a rush of foreign money buying any liquid asset in the hope that the dirham would depeg from the dollar, together with unrealistic optimism about Dubai's short-term economic prospects.

When the Central Bank made clear it would not depeg, and global financial conditions worsened, the hot money fled and the ordinary foreign investor followed soon after. The country was then shocked by several external factors, such as the Arab Spring, and has since not fully recovered. This is not a scenario we want to recreate. The right question is: "How do we create sustainable, liquid trading and grow the UAE capital markets?"

I believe the UAE is at a crossroads. The challenges we face are surmountable; there are changes within our control that, if made, will have a positive impact on the country. The goal is not to go back to the "bubble" period before 2008 when the markets were inflated partly by false perceptions of economic fundamentals, but to create a solid capital market foundation that will enable the UAE to grow and prosper.

The international investors want this market to succeed and believe in the growth of the Middle East; they believe the UAE can and should play a central role in this economic expansion. By implementing these recommendations, the UAE will be on a road to recovery. The changes will not solve all our problems overnight, but over time they will engender confidence in the broader capital market community. Just as liquidity begets liquidity, confidence begets confidence; and confidence is critical to putting the UAE in a leadership role in the Gulf.

business@thenational.ae