UAE equities: elusive liquidity to pick up in second half

However, volumes won’t be comparable to previous year when the market was upgraded to an emerging market status by the MSCI

By Siddesh Suresh Mayenkar, Staff Reporter

Dubai: Investors are likely to wait until crude oil stabilises and the dust settles on Greece before jumping back into UAE equities.
Liquidity in the UAE could pick up near the end of the third quarter.

Even then, volumes won’t be comparable to when the market was upgraded to an emerging market status by the MSCI. a move that resulted in inflows of billions of dollars, industry participants said.
“We would witness a lower figure on volumes this year because last year we had huge liquidity due to the MSCI upgrade,” Amr Hussein Elalfy, managing director — global head of research at Mubasher Financial Services told Gulf News.
“Oil has been dampening the sentiment in the market. I believe that due to this, they are reducing their exposure from equity markets. If we look at Dubai, retail investors have been net buyers in January, and institutions have been net sellers,” Elalfy said.

Foreigners are net sellers in the UAE markets, and this has been the case since December and January. Retail investors were net sellers in December, but they turned net buyers in January, he said. Dubai turnover has been down by more than 50 per cent, while volumes in Abu Dhabi has been down by more than 40 per cent.
Reduction in leverage
Another reason for low volumes could be due to reduction in margin trading.
“I think steps taken by Esca [Emirates Securities and Commodities Authority] to curtail margin trading is sensible and we shouldn’t be having too much of leveraging in the system,” said Saleem Khokhar, head of equities at National Bank of Abu Dhabi Asset Management.
Brokerage firms are a bit more reluctant to give margin loans due to expected volatility in the market, industry players said.
“Brokers are more prudent now in using the leverage. The capital markets is more concerned of excessive leverage in the markets,” Elalfy said.
The central bank is already studying margin lending by banks, which many analysts and traders believe led to the aggravated downfall in markets.
On December 17, the UAE’s capital markets regulator also asked the brokerages to sell shares of clients if they don’t replenish any shortage in margin within two days of such intimation, as per the law.
Esca has asked the brokerages to inform clients of any shortage in margins in the accounts on a daily basis.
Foreign flow
“I think more liquidity could be triggered by foreign investors coming back to the market. This year is going to be awful year in terms of price performance. there is still some geopolitical risk across the globe and with Greece. Once these risk subsides, foreign investors would come back to our markets as we have the potential to give double digits returns,” Elalfy said.
Analysts still reckon that the fundamentals still remain strong and the stock market has provided good bargains.
“Retail investors would start to realise that there is a lot of value in the markets and other institutional stocks would start picking up stocks after the undervaluation that we witnessed in certain stocks recently,” Elalfy said.
Consolidation
“We expect more consolidation in brokerage industry. In 2013, a lot of brokerages were forced to shut down, but in 2014 after the volumes went up gave hope to a lot of players which were supposed to stop their operations,” Fathi Ben Grira, chief executive officer at Menacorp.
“We are still making money and we will be still more aggressive commercially to prepare for the next cycle,” said Grira.
There are currently 49 brokers in the UAE and at the peak level there were about 110 in 2008, Grira expect more reduction in the number of brokerages and the market doesn’t need more than 25 brokers, he added.

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