Abu Dhabi's financial sector ramping up after MSCI upgrade

The Abu Dhabi Securities Exchange hopes to cement the trust of institutional investors lured by the UAE's inclusion in the index. Ben Job / Reuters

The trading floor of the Abu Dhabi Securities Exchange is the busiest it has been in years.

It may not be quite full, but the deep leather chairs that were once a comfortable spot to fall asleep are now filling up with day traders.

Investment firms and exchange officials in Abu Dhabi are gearing up for the next phase of growth after MSCI's upgrade of the UAE and Qatar to "emerging market" status last week.

The ADX, which has made several new managerial hirings including a deputy chief executive of operations, hopes to cement the trust of institutional investors lured by the UAE's inclusion in the index.

Exchange officials are keen to keep pressing forward with improvements to market infrastructure, particularly given that the same announcement from MSCI that upgraded the UAE and Qatar also involved downgrades for both Greece and Morocco, and raised the possibility of Egypt's ejection from the club of "emerging" markets.

"I personally believe it's the easiest thing to arrive," said Rashed Al Baloushi, the exchange's chief executive. "To continue at that level, that's the hardest part … I feel we have to work hard now to promote the opportunities which are available in Abu Dhabi."

The exchange is now discussing how it can provide other products including indexes, futures and depositary receipts, and is studying whether it is able to make the necessary improvements to reach "developed market" status in the long term.

But Mr Al Baloushi had no comment upon whether or not the long-anticipated merger of the Abu Dhabi and Dubai exchanges would follow as the next strategic step for the UAE's markets.

Smaller financial firms said they were anticipating having to work hard to cope with the consequences of the MSCI upgrade.

HSBC expects the UAE and Qatar will generate inflows of about US$800 million from passive funds alone.

"For us as a brokerage firm, now the real work will start," said Fathi Ben Grira, the chief executive of Menacorp. "We have this one year, for now, to go to visit people in London and Frankfurt to pitch them and explain to them about the market. That'll be something that we're going to start to do very soon."

Menacorp is seeking to increase its staff of 25 to 35, under plans drawn up before the MSCI upgrade.

Waha Capital is adding research staff and investing in its equity trading capabilities to help to manage returns from its investment portfolio, said Michael Raynes, the Abu Dhabi-based firm's chief operating officer and chief executive of its financial services division.

"We invest in fixed-income markets and we've been pretty successful," he said.

"I'd like this business to be a business that can invest in fixed income but also equities. As we go forward I think fixed income [investments] won't perform as well as they did perform, and we're now working around creating an equity capability."

According to fund flow data compiled by Deutsche Bank, the Middle Eastern markets received inflows of $655m during May, the highest since the bank began keeping records in 2009. Of that total, $131m and $129m went to Qatar and Dubai, respectively.

But Merrill Lynch and Credit Suisse cut the UAE from "overweight" to "neutral" within the past few weeks, following a world-beating rally that has left the Dubai Financial Market General Index up 46.8 per cent year-to-date and Abu Dhabi's benchmark 39.1 per cent higher during the same period.