UAE stock markets 'need more liquidity'
Dubai, August 24, 2010
Stock markets in the United Arab Emirates need additional liquidity from government funds to counter slumping volumes and muted investor activity, the chief executive of Dubai-based Daman Investments said.
'I think there should be a program for creating sustained activity including pension funds and government funds,' Shehab Gargash told reporters on the sidelines of a conference.
'If you have the ability to prompt the market, use it because your market is a very easy and quick reflection of the health of the economy.'
UAE markets, which include the two domestic bourses, Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange are the worst-performing among Gulf peers so far this year with lack of institutional participation hurting liquidity.
The DFM index is down 16.8 percent this year and 76 percent below a January 2008 peak. Abu Dhabi's bourse is down 8.5 percent year to date. A sharp fall in trading volumes is forcing equity brokerages in the region to close down as they struggle with low revenues and rising costs.
Turnover and trading volumes on the DFM and ADX have slumped since the 2008 financial crisis, and debt issues by Dubai-based conglomerates have kept foreign institutional investors away from the markets.
More closures are likely, the CEO said, as firms see the current market environment as being not viable enough to continue their operations. 'There were 120 (brokers) earlier, today there are around 70 and we expect the numbers to reach between 30 and 35 in the next two to three years,' Gargash said.
Daman, formed in 2000, also acts as a parent company for several wholly-owned subsidiaries with activities ranging from asset management to private equity.
Daman, which is active in asset management, brokerage and venture capital, in November announced plans for an initial public offering to strengthen its financial position. The chief executive said IPO plans are still on track, adding that market conditions were expected to improve by end of 2012.
'We still believe that the market environment will be conducive for an IPO by the end of 2012, should it not be the case, we will be the first to come out and say that it will be a delay and not a cancellation,' he said.
The company, which has over 5 billion uae dirhams ($1.4 billion) in assets under management, is in the process of completing a second round of a previously-announced 300 million dirhams private placement to a strategic investor. It plans to secure an additional investment of 200 million dirhams in the process.
'We are still stepping up our size. The environment will flush out a lot of bounty hunters. There will be less competition but there will be serious competition,' Gargash said. - Reuters