Dubai Financial Market Company, the only publicly listed bourse in the region, posted a 31 per cent drop in second-quarter profit as investor interest and trading volumes continued their prolonged decline in the UAE.
Net income reached Dh10.2 million (US$2.7m) in the quarter that ended on June 30, the bourse said, compared with Dh14.7m in the same period last year.
The company's profits have been sinking ever since access to credit became more difficult and asset values diminished in the face of the global financial crisis that began in 2008.
At the same time, investor confidence was all but wiped out in the UAE as retail investors, which made up the majority of trading volume until then, retreated in droves.
"Their profits keep declining," said Anastasios Dalgiannakis, the head of institutional trading at Mubasher Financial Services in Dubai. "The most important question is how do you get retail investors, who make up 80 per cent of the market, back."
The big reduction in trading volumes has had a domino effect on the market. As interest in trading declined, so too did companies' interest in listing shares on the market.
The Dubai Financial Market has not had an initial public offering since Drake & Scull International in 2009. Abu Dhabi Capital Management, an alternative investment company, and NMC Health opted for listings on the London Stock Exchange rather than a UAE bourse. Both companies cited liquidity as a main concern.
A share sale "of a key asset in Dubai, even if it is a small stake of Emirates Airline, or the airport's duty free, would be a strong catalyst and bring money back to the stock market", Mr Dalgiannakis added.
Brokerages, whose bread and butter income is from trading commissions, have also been hurt as volumes crashed on the withdrawal of investors.
There are 51 securities firms currently in operation, down from 110 two years ago.
Making matters worse, trading fees in the country are at a premium to the bourse's regional peers. The Dubai Financial Market Company takes a standard fee of 15 basis points. By contrast, Saudi Arabia's Tadawul, the largest and most diversified stock market in the region, charges a market fee of just 1 basis point.
A merger of the UAE's three exchanges, the DFM, the Nasdaq Dubai and the Abu Dhabi Securities Exchange, would help to reduce costs and alleviate many of the financial and infrastructure challenges currently related to investing on the bourses, Mr Dalgiannakis said.
Sultan Al Mansouri, the Minister of Economy and the chairman of the UAE market regulator, said in March he expected a decision on a potential merger to be made by the end of the year.
"If the DFM merges with the Abu Dhabi Securities Exchange, from a foreign perspective, they would be more inclined to invest in one bourse, with more listings and the same rules," said Mr Dalgiannakis.
MSCI, the indexes of which are tracked by investors with about $3 trillion in assets, in June delayed a decision until December on whether to upgrade the country to emerging markets status from frontier.
halsayegh@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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