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- PLEAST NOTE
- All information contained in this presentation are for private
presentation to specific audience (like members of ICAI Dubai/Abu Dhabi
Chapters).
- As such no part of this presentation may be reproduced, repackaged,
redistributed, resold or used in any form or by any means graphic,
electronic or mechanical including photocopying, recording, scanning,
tapping or by information storage or retrieval or by any other means
without the express written consent of P. Krishna Murthy, Dy.General
Manager, Dubai International Securities LLC, PO Box 32555, Dubai, UAE.
- This document is not to be used or considered as an offer to sell or
solicitation of an offer to buy any securities.
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- KEY GOVT. POLICIES
- Diversification away from oil – vision ahead
- Privatization Initiatives / disinvestments / break of monopoly in key
sectors like: Telecommunication sector, Services Sector
- A “prudent” fiscal and monetary policy
- Spreading of economic development
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- The State is comparatively stable in short and medium term, despite a
lack of democracy.
- UAE Cooperates closely with GCC states in security and economic
policies. It has one of the most liberal trade regimes in the region.
- Unlike other GCC countries, UAE has militancy problem that has afflicted
Saudi Arabia nor the
ethnic/relegious tensions of Bahrain.
- Progress on privatisation front: Establishment of General Holding Co
(GHC) for privatising publicly owned industries in the emirate i.e.
public joint stock companies will control assets formerly owned by
General Industries Corporation.
- Government is likely to reform commercial company law which will boost
foreign ownership prospects in all emirates.
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- GROWTH PROSPECTS
- Real Estate business to grow upto US $ 50 bln between now and 2010
compared to $ 5 bln in last three years.
- The main driver for non-oil sector growth of above 9% will be
construction/real estate stemming from government’s initiatives in
tourism, commercial & residential buildings and development of free
zones (attracting foreign investments).
- Infrastructure investments is likely to go up – new airports, roads,
railway/transport systems.
- Growth in airline industry is expected to continue.
- Private sector is growing both in size and influence – contributes 44%
of UAE GDP (2003).
- Dubai’s GDP in particular is showing robust growth 16.7% to almost
AED.100 bn in 2004 – reduced dependence on oil to 6% in2004.
- Capital for development activities to be raised through equity/bonds in
capital markets.
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- 8. Political turbulance in Middle East and fears about security of
supply are keeping oil prices well above $ 40/b levels.
- 9. Oil boom is expected to result in UAE export earnings in excess of
US$ 25 billion.
- 10. Impact on overall economic confidence has been significant – 95%
rise in UAE stock markets and 35% profit rise in listed companies.
- 11. High per capita income of UAE citizens – US$ 20,000+.
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- BRIEF HISTORY – UAE STOCK MARKETS:
- Two Stock Exchanges in UAE were established in the year 2000
- They are regulated by Securities & Commodities Authorities of UAE,
also established in the year 2000.
- Three tier structure in terms of regulations – 1) Central Bank, 2) SCA
3) Stock Markets
- Total of 50 companies are listed on DFM and ADSM
- 3 Bonds are listed on DFM – not much of trading
- 8 Mutual Funds are registered with DFM – no trades
- Financial intermediaries are licensed and regulated in UAE.
- Gradual improvement in efficiency of regulatory control mechanism –
currently it is not at par with standards practiced in US, EU etc
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- Only 20, out of total 51 companies listed on two stock exchanges, are
available for expatriates to invest.
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- Major benefits realized since the establishment of bourses in UAE are
- Access to large investors base;
- Greater liquidity in the trading of securities;
- Improvement in accuracy level in respect of valuation of stocks i.e.
reflection of company’s performance in stock price;
- Growth of Mutual funds, though not significant;
- Greater public awareness about investment opportunities as well as
information on issuers’ products/services;
- Better supervision of listed companies, stock markets as well as
intermediaries’ activities through regulations and supervision.
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- Outperforming all the GCC markets, DFM rose dramatically during 2004.
- The main general index of DFM gains stood at 277.63 points, or 172.22%.
- The index closed at 438.84 points compared to 161.21 points at the end
of 2003.
- ADSM general index recorded historical levels in the 2004 compared to
2003.
- Main index closed at 3,070.88 points, representing 74.79% gain over past
year.
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- Overall corporate profits have grown at a healthy 30% in 2003 and 35% in
(Sep) 2004.
- Since 2001 corporate profits are up more than 180%
- Construction demand is driving a theme – Residential, Commercial and
project related sectors are both strong.
- Investment and finance sector is complementing Real Estate activities
and hence thriving.
- Earning momentum will be seen continuing into FY 2005.
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- Double digit overall profit growth will provide market with impetus.
- Valuations will be key driver – market trades at 18.7 Fwd -PE and offers
dividend yield of around 1.6%.
- Liquidity and trading breadth are on the rise.
- Underpinned by a regulatory framework attempting towards firm Governance
– still a long way to go.
- Disinvestments and IPOs will give momentum a strong impetus.
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- The GCC stock markets maintained their four-year bull run
- Trading crossing the Dh2 trillion mark in 2004, led by Saudi Arabia
(85%), followed by Kuwait (Dh190.42 billion, about 9.4%), UAE with
Dh67.10 billion ranked third (3.31%)
- Projected growth in 2005 on the back of
- New initial public offerings (IPOs), strong investor sentiment and more
linkups of trading floors - planned links between the Abu Dhabi
Securities Market and other bourses - a positive move providing more
options for GCC investors and expatriates to participate in the stock
market
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- WTO: With the UAE & GCC having stated its desire to join the WTO,
local financial markets must open up to foreign financial institutions
sooner or later. There is a grace period before this happens, and this
should be the "last call" to strengthen local financial
institutions, particularly in the non-existent investment-banking and
financial-services areas.
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- First international exchange to be launched in 21st Century.
- Will enable trading in wide range of securities like equities, bonds,
funds (index funds also), Islamic products, futures/options, indices and
alternative investment products.
- At DIFX companies form outside the region will be allowed to have dual
listing.
- PRIMARY FOCUS:
- Banking services
- Capital markets
- Asset Management & Fund Registration
- Reinsurance
- Islamic Finance
- Back office operations
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- Bring the best practices in regulatory matters.
- Attract best talents in investment banking industry.
- Set higher professional and ethical standards for investment profession
– at part with international levels.
- Higher standards of disclosures and transparency in reporting.
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- Regulatory Issues:
- Control and Surveillance issues,
- Corporate Governance,
- Disclosure and transparency,
- NPA disclosures and loan classification
- Insider trading controls
- Market Related Issues:
- Small investor participation, Lack of MF market, Risk diversification
- Volumes and free-float – limitations, liquidity,
- Availability of research – fundamentals,
- Lack of foreign fund managers and their investments,
- Domination of market by Emaar
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- It is reported that only 31 out of 49 listed companies in ADSM/DFM
published their financial results for the first half ended June 2004,
before 31/7/04. i.e. 36% of the listed companies were unable to provide
information concerning their financial health even after a month.
- Yet part of those published information was considered inconsistent as
per NBAD economic bulletin.
- It presents a negative sign affecting Stock Markets. But on the positive
side, the authorities have been dealing with such issues very strictly
and gradually improved compliances. This gives comfort to all investors
and investment advisors that soon there will be a significant efficiency
visible in stock market operations with control mechanisms.
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- Markets in their early stages of development, hence GCC stock markets
are characterised by outstanding returns performance.
- However, issues relating to foreign investment openness, industry
governance and transparency have contributed to thin trading and lack of
liquidity particularly in the smaller GCC markets, though change is
occurring gradually.
- Factors like oil revenues flow strongly, and there remains a huge pool
of petro-dollar assets for repatriation cause delay in bringing pressure
for the authorities to implement faster market reform.
- Amalgamation of the stock exchanges may be a good alternative to
encourage greater liquidity and efficiency.
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- Key Issues
- Implementation of Rules/regulations – adoption of best practices
- Market Control & surveillance mechanism to strengthen further
- Corp governance, Regulatory compliance by participants to improve
- Liquidity and free-float of scrip essential for growth
- Emerging Theme
- Earnings driven market with upside potential of 20 to 25% in 12 months
- Opportunities for new class of investors – retail and small savings
segment, (Mutual Fund houses can play a vital role)
- Opportunities for Financial Intermediaries and Fund Managers.
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- Corporate Governance and Earnings
- Foreign investments/participation
- Opening up for expatriate investors
- Active role of Mutual Funds
- Introduction of Index Trading
- Cross listing of regional companies
- DIFC’s influence on improving standards
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- Raising of capital process:
- Merchant banking activities
- Other financial intermediaries
- Certification & attestations by independent auditors
- Participation of retail investors through MF
- Cross listing of shares within region
- Growth of Mutual Funds, diversification of risks
- Professional investment advisors
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- Real Estate, construction and Building Materials sector
- Investment Companies
- Insurance & Banking Sector
- Service Sector – airline, tourism related
- For an potential upside of 20 to 25%....
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- Economic & Financial bulletin of Central Bank, NBD and NBAD
- The UAE Business Forecast & Middle East Monitor
- Shuaa Insight
- GCC Market review
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- Information provided in this presentation are taken from sources
believed to be reliable and authentic. The author and the company for
which he is working do not assume any responsibility for the actions
taken by anybody based on this presentation resulting in a financial
loss or otherwise to him/her.
- The views and opinions presented here are purely that of the author,
based on the information available to him, sources considered reliable
as well as his interpretations. The users are advised to consult his/her
financial advisor before making any investment decision.
- Suggestions and recommendations made in this presentation may not be
suitable for every investment strategy or to all investors with
different objectives.
- Stock markets are known to have the risk of volatility including loss of
entire investments as the stock prices may up or down due to various
factors. Hence, investors should read all the risk cum offer documents
of respective issuers/companies before deciding on investments.
- Stock / Bond / Fund prices may rise as well as fall. Investors buy and
sell securities at their own risk. Past performance and forecasts
contained herein are for illustrative purposes only and are not to be
relied upon as advice or interpreted as a recommendation. Opinions and
estimates offered constitute our judgment and are subject to change
without notice, as are statements of financial market trends, which are
based on current market conditions. We believe the information provided
here is reliable, but do not warrant its accuracy or completeness. The
above information is issued without any liability on the part of
presenter and Dubai International Securities LLC.
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Notes
