Abu Dhabi's launch of short-selling set to attract big investors

Move will also help to boost liquidity and is evidence of a commitment to structural reform, experts say

Abu Dhabi stocks had their best day in over four months, closing up 1 per cent thanks to gains from FAB and Etisalat. Ben Job / Reuters

The introduction of technical short-selling in Abu Dhabi Securities Exchange (ADX) will help to attract more institutional investors, boost liquidity and bring the market more in line with international standards, experts said.

The Abu Dhabi market announced on Tuesday the launch of a limited form of short-selling that will apply to 10 stocks, with certain con­ditions.

The stocks include FAB, the country’s biggest lender, the telecom operator Etisalat, the lender Abu Dhabi Commercial Bank and the developer Aldar Properties.

The launch of short-selling “is further evidence of the strong commitment towards structurally reforming regional equity capital markets in order to bring them in line with international standards”, said Bassel Khatoun, the chief investment officer of Mena equities for Franklin Templeton Investments.

“The move is likely to improve liquidity and foreign institutional investor participation which will add further sophistication and maturity to the market over time.”

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The exchange had announced plans in December to introduce short-selling - the practice of selling borrowed shares in the hope of buying them back later at a lower price – by the end of March.

The Dubai Financial Market announced in January plans to introduce covered short-selling but has yet to set a firm date for implementation.

Abu Dhabi is following in the footsteps of the Saudi Arabian bourse, the Arab world’s largest, which this year launched short-selling as part of reforms aimed at garnering a spot on the much-tracked MSCI Emerging Market Index.

The index compiler upgraded the UAE to emerging market status from frontier market in 2014. Saudi Arabia has yet to be included.

To regulate short-selling, the Abu Dhabi market will suspend trade in a given stock if its reference price falls 5 per cent in a day or if the short sold securities reach 10 per cent of total capital issued.

These limitations are a welcome first step because investors need to familiarise themselves with the process, experts said.

“To have it regulated at an early stage is something positive and that’s something responsible as well,” said Rami Sidani, the head of frontier investments at the asset manager Schroders.

Al Safwa Mubasher Financial Services is the first broker to offer short-selling services on ADX and said it has received interest from many local investors.

“I think ADX will develop short-selling in the next stage in the same way of the international markets,” said Ehab Rashad, the chief executive of Al Safwa Mubasher.

Overall, UAE stock markets are upping their game as they seek to boost their status.

Dubai’s stock exchange hopes to introduce real estate investment trusts (Reits) next year as part of a 2021 strategy aimed at diversifying asset classes to elevate the bourse to developed market status.

The DFM’s sister market, Nasdaq Dubai, already has two listed Reits, from the Dubai-based lender Emirates NBD and Emirates Reit.

Nasdaq Dubai also introduced stock futures last year in another effort aimed at wooing mainly foreign investors to the UAE markets.

“The introduction of different tools that could enhance potentially liquidity across the markets has been on the agenda for some time, whether derivatives or short-selling or even setting up the right framework for the estab­lishment of ETFs,” said Mr Sidani.