Foreign investors pile into the UAE as Dubai’s Expo 2020 bid buoys interest

Foreign funds are flooding back to the UAE stock markets with inflows more than trebling so far this year, as positive Expo 2020 sentiment fuels overseas interest.

Foreign institutional investors bought US$718.9 million worth of UAE shares this year on positive sentiments regarding Dubai's bid for the World Expo 2020. Ahmed Jadallah / Reuters

Foreign funds are flooding back to the UAE's stock markets, with inflows more than trebling so far this year, as positive Expo 2020 sentiment fuels overseas interest.

Foreign institutional investors bought US$718.9 million worth of UAE shares so far this year, up from $202.97m in the same period last year.

The trend has pushed up the proportion of shares foreigners are allowed to own to their maximum limit for at least one company in the past two weeks.

“It has been a recovery year, particularly for participation from foreign investors with increasing interest coming from abroad,” said Marwan Shurrab, a fund manager at Vision Investments in Dubai.

“Dubai’s bid for the Expo 2020 has played a big role in the bull run. It created a sentiment that was positive over the whole year in anticipation of the results.”

Foreign institutional investors are also understood to be accumulating positions on UAE equities ahead of the country’s inclusion into the MSCI index next May.

The MSCI in June upgraded the UAE, and its three bourses, to an emerging market. The index compiler, whose indexes are tracked by investors with about $7 trillion in assets, previously classified the country as a frontier market.

Saleem Khokhar, National Bank of Abu Dhabi’s head of equities at its asset management arm, said there had been good investment inflows from international investors.

“I would expect more actually to continue to next year as we get closer to the MSCI inclusion of UAE equities into the emerging markets index,” he said.

Jaap Meijer, the executive director of equity research at Arqaam Capital in Dubai, said some funds which had “never looked at the UAE” had been “warming up” to the market because of the MSCI upgrade.

The Abu Dhabi Securities Exchange General Index has risen 45.6 per cent so far this year, while the Dubai Financial Market General Index has surged 78.1 per cent of the same period, Bloomberg data show.

Average daily traded value on the Dubai Financial Market has risen to Dh598.7 million this year from Dh192.81m last year. Traded value on the ADX has more than tripled to Dh307.06m this year from Dh88.3m last year.

Fadi Al Said, ING Investment Management’s head of investments in Dubai, said interest from all investors, foreign and local, had been increasing.

“It is much easier to enter and exit positions as a result of increased liquidity,” said Mr Al Said.

The surge in trading velocity has some companies looking at expanding their foreign ownership limits, while at others foreign shareholdings have hit the limits.

According to the regulations of the stock market regulator and the Ministry of Economy, publicly listed companies can make available up to 49 per cent of their shares to foreign investors. However, many companies have limited stakeholding thresholds.

“This is a break on liquidity, as [investment banks and brokers] have to find GCC buyers for GCC shares, foreign buyers for foreign shares,” said Gary Watts, Al Tamimi & Co’s regional head of corporate commercial.

The inclusion of UAE stocks into the MSCI emerging markets index may encourage more companies to consider widening their foreign ownership limits.

Dubai Islamic Bank’s chief executive Adnan Chilwan on Wednesday said the time was ripe to re-examine foreign ownership limits and that the Sharia-compliant lender was considering “amending articles of association”. The bank’s current limit stands at 15 per cent.

The lender’s move comes after Mashreq, another Dubai lender, in September increased the threshold of its shares that could be owned by non-Emiratis to 20 per cent from 0.9 per cent.

Drake & Scull International, Dubai’s second-biggest contractor, two weeks ago hit its foreign ownership limit for the first time in recent years.

“That’s related to the strong numbers announced this year and talks in the market about interest from a strategic investor looking to acquire a stake,” Mr Shurrab said.

* with reporting by Adam Bouyamourn and Andy Scott