Diversifying capital: The emirate expands its range of investment offerings to attract foreign backers

Dubai’s capital markets are seeing innovation in a range of spheres, witnessing the launch of new fundbased products on its primary exchanges, as well as new types of futures contracts on both Nasdaq Dubai and the emirate’s derivatives-focused exchanges.

PROPERTY VENTURE FUNDS: March 2017 saw the listing of a second real estate investment trust (REIT) on Nasdaq Dubai, in the form of ENBD REIT, an investment vehicle created by Emirates NBD, the largest bank headquartered in Dubai. The listing followed the introduction of Emirates REIT in 2014, after an initial public offering (IPO) the previous year, bringing the number of REITs listed on the market to two. The largest investor in Emirates REIT prior to its IPO was Dubai Islamic Bank, with a share of 30.9%. Emirates REIT has lost value since its listing, with shares in the instrument worth $1.02 each in late December 2017, down from $1.36 when it was listed.

Eric Salomons, director and head of markets at the Dubai Financial Services Authority (DFSA) – the regulator for the Dubai International Financial Centre financial free zone, in which Nasdaq Dubai is based – told OBG that the authority was in conversation with several other potential candidates.

The emirate is a natural home for such vehicles, given the importance of real estate in its economy and its status as a financial hub. However, Stephen Atkinson, director of AREIT Investment Holdings, which is considering launching a REIT of its own in Dubai, told OBG that there are a number of obstacles to the development of the segment. “Many buildings in Dubai are owned by families who are often unwilling to sell to investors, so there is a limited, ready pool of assets, and a lack of liquidity and volume in the market,” he told OBG. “Furthermore, on the demand side, big local institutional investors tend to prefer to invest abroad rather than within the UAE.”

EXCHANGE-TRADED FUNDS: REITs are not the only form of tradeable investment fund being introduced to the emirate: June 2016 saw the listing of the first exchange-traded fund (ETF) – a type of mutual fund that is usually built around an index rather than actively managed, and that can be bought and sold like a share – on the Dubai Financial Market (DFM). This was done in the form of Afkar Capital’s UAE S&P Undertakings for Collective Investment in Transferable Securities ETF, which seeks to give investors exposure to the largest stocks by capitalisation in the UAE’s three primary markets: the DFM, the Abu Dhabi Securities Exchange and Nasdaq Dubai.

In March 2017 the DFM launched a new trading platform dedicated to such funds. Since 2014 investors seeking exposure to UAE equities have also been able to do so via iShares’ MSCI UAE Capped ETF, which is traded on the US Nasdaq.

NEW FUTURES: Another area witnessing innovation is the derivatives markets, with the Dubai Gold and Commodities Exchange (DGCX) having launched new products in recent years. In March 2017 the exchange introduced Shanghai gold futures. “The futures tap into growing demand for exposure to such a product, and increasingly strong links between China and the UAE,” Gaurang Desai, CEO of the exchange, told OBG.

In January 2016 the DGCX also became the first in the Middle East to offer futures on international single stocks, with contracts available on 18 US and Indian shares, whereas Nasdaq Dubai offers single-stock futures in UAE-listed equities (see overview).

“The single-stock futures contracts had a slow start, but we are now beginning to see traction. On a daily basis we are seeing 10,000-12,000 contracts trade,” Meng Chan Shu, director of business development at the DGCX, told OBG, noting that Indian single-stock futures were the more popular. He described the contracts as among the institution’s most promising offerings. “Single-stock futures are something Indians have grown up with, so there is already a lot of familiarity with the products.”