Rashed Al Balooshi, CEO, Abu Dhabi Securities Exchange (ADX): Interview

Interview: Rashed Al Balooshi

How will the MSCI upgrade help to diversify liquidity sources and increase market capitalisation?

RASHED AL BALOOSHI: Over $9trn is estimated to be bench-marked to MSCI indices worldwide. The MSCI UAE Index has a pro-forma weight of 0.58% on the MSCI Emerging Markets Index, while the MSCI UAE Small Cap Index has a pro-forma weight of 0.85% on the MSCI Emerging Markets Small Cap Index. The MSCI upgrade will focus investors’ attention on the UAE, which could make it a key destination for global equity funds in the long term. The increase in portfolio flows and the entry of foreign institutional investors would diversify liquidity sources and balance the mix of retail and institutional investors.

Signs of increased interest in our equity markets appeared in early 2013, and by the end of 2014 net foreign investment on ADX reached Dh3.5bn ($952.7m) compared to Dh2bn ($544.4m) in 2013, which represented a 75% increase. The number of foreign institutional investors on ADX almost tripled from 380 in 2013 to more than 1100 by the end of 2014. This rise in status will open up a wider pool of investor capital for both the stock market and businesses, and will result in a positive liquidity boost for the nine firms on the MSCI and the shares of other listed companies.

How does the new position allow ADX to capitalise on expected initial public offerings (IPOs)?

AL BALOOSHI: We expect that the new status will attract more foreign direct investment (FDI) to the exchange. Wider exposure to international investment will lead to an increase in IPOs from domestic and regional players, as the quality of FDI will add more depth and stability to our markets. Rising volumes, improved valuations and increasing foreign institutional investments are expected to drive IPOs in the GCC. Moreover, ADX’s inclusion in the MSCI Emerging Markets Index will strengthen the appeal of our market to a wider range of investors for whom the strong growth, policy flexibility, solid public finances and sizeable currency reserves in Abu Dhabi were already attractive.

To what extent is a dedicated investor relations department for listed companies required to attract greater levels of institutional investors?

AL BALOOSHI: We believe a dedicated investor relations department can accelerate change in the market by improving companies’ ability to tap into local and international capital. Some investors do not know much about listed businesses or their owners, and hence having a dedicated department that can provide accurate information would give these investors the confidence required to make decisions. Far from being an additional cost, an effective investor relations arrangement not only saves valuable management time, but it can also help to deliver a fair valuation for a company’s equity, reduce funding costs and provide a firm with a stronger shareholder base. ADX also introduced the Extended Business Reporting Language platform, which facilitates data reading for investors and other interested parties, thus enhancing transparency.

What other financial instruments do you envisage being introduced in the future and why?

AL BALOOSHI: We have all the modern infrastructure and procedures to support any new investment or financial instrument, regardless of whether it is denominated in dirhams or foreign currencies. The X-stream Trading system, for example, can handle the trading of equities, fixed income and exchange-traded funds. It also provides the scalability to allow additional instruments to be added at a later date. Halfway through 2014, ADX and the National Bank of Abu Dhabi signed an agreement paving the way for the listing of bonds and new debt instruments. In October 2014 we listed a $1.5bn Abu Dhabi government bond that will mature in 2019 to boost liquidity in the bond market, allowing investors to trade simultaneously on the London Stock Exchange and ADX. In November 2014 we created the Second Market to trade the shares of private joint stock companies, and more financial instruments will be introduced by the exchange in 2015 as demand grows.