As the country's first initial public offering (IPO) in almost two years approaches, investors will be watching whether new shares breathe life back into the region's stagnant markets.
Confidence in exchanges has dwindled in recent weeks, with sharp volatility and low volumes.
Axiom Telecom is expected to offer its shares on about December 9. The mobile phone retailer, based in Dubai, set a price range of 80 US cents to $1.15 for the sale of as much as 35 per cent of its shares but only to institutional investors. The exclusion of retail investors to the listing is, however, problematic to some.
"There is no money left on the table [for retail investors] to play around with … the free flow is cut off," said Irfan Chaudhry, the chief investment strategist at Emirates NBD. Retail investors typically buy and sell small amounts of a stock creating the liquidity and interest needed to draw in long-term institutional investors.
The global average share price performance for IPOs last year shows that three months after listing, the price of a stock rose by about 15 per cent. Nawras, the Omani mobile phone company controlled by Qatar Telecom, experienced just a 3 per cent gain in its share price three months after its IPO, as retail buyers took up only 38.5 per cent of shares, despite the firm reserving almost 70 per cent of shares for those investors.
The Dubai Financial Market General Index closed 1.2 per cent down on the week to 1,682.23 points and the Abu Dhabi Securities Exchange General Index rose 0.5 per cent during the week to end on 2,756.89 points. The ADIB Islamic Index on MSCI UAE gained 0.09 per cent to 2705.5 points and the MSCI Frontier Market Index was down 1.2 per cent on the week to 578.00 points.
The volume of shares traded in Dubai and Abu Dhabi is currently less than half what it was a year ago.
Dr Nasser Saidi, the chief economist at the Dubai International Finance Centre, said new offerings will help reach untapped liquidity.
"An IPO build-up is happening now. We knew a number of companies that were planning to list before the crisis in 2008 and early 2009 but the market conditions didn't allow them," he said, adding that higher oil prices and lower interest rates had brought companies back to market.
"There's a new mood in the capital markets [and] a cloud that has been hanging over the market has lifted," said Dr Saidi, adding market sentiment had improved "substantially".
But some say now is not the time to launch an IPO. Ameed Kanaan, the general manager at Al Jazeera Financial Services, said, "Before we go down the IPO route we have to be fully covered [in our markets]. It doesn't make sense to launch IPOs on a sick market because the company will become sick too."
An IPO by Wataniya, a mobile telecommunications operator in the Palestinian Territories, is also expected to close this week.
There are at least half a dozen companies considering a flotation in the UAE next year covering a variety of sectors, Dr Saidi said, although he did not name any. Planned IPOs already announced include Kuwait Energy Company, an oil and gas company that operates in the Middle East and eastern Europe. It plans to go public in the next nine months. Emirates District Cooling, a provider of central air conditioning based in Dubai, may also offer shares by the end of next year.
The Dubai and Abu Dhabi exchanges have increased 15 per cent and 12 per cent, respectively, since August.
An influx of IPOs into the UAE would open the market up to international investors and, in turn, strengthen the secondary market for retail investors, which make up about 60 per cent of traders and therefore the bulk of volume on the local bourses.
"With an IPO culture developing, the market will get bigger and therefore less volatile," said Mark McFarland, an emerging markets analyst at Emirates NBD.
"The whole market becomes more appealing."
fhalime@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.”
