Brokers quit UAE market

Local brokerages are shedding jobs and cancelling their trade licences as they fall victim to the investor crisis.

Local brokerage companies are shedding jobs and cancelling their trading licences as they fall victim to an investor crisis of confidence brought on by falling stock prices in the region. The Dubai Financial Market (DFM) was the world's third-worst performing stock market last year as investors fled the property-heavy bourse. The DFM licensed five brokerage houses in the early part of last year, but applications dried up after July as the financial crisis unfolded and trading volumes declined. Trading volume on the DFM is down from 10.2 billion shares in Dec 2007 to 2.62 billion last month. Trading on the Abu Dhabi Securities Exchange is equally stark, with volume for the same period down from 5.15 billion shares to just 1.2 billion. "Conditions are so bad now and with more than 100 brokerages already out there, it won't help to merge with 20 partners," said Ramesh Iyer, a financial adviser who was the former operations manager for Merchant ­Securities. Merchant Securities and Faisal Shares and Bonds Broker cancelled their licences to trade on the DFM last year. The DFM last year increased the limits of paid-up capital for brokerage houses to Dh50 million (US$13.6m), forcing a number of local brokerages to pull out because of worsening market conditions. Merchant Securities, which employed 25 people up until late last year, is operating with a skeleton staff of two to three people until conditions improve. "There is no business for trading," said Mr Iyer, adding that salaries had also been reduced by 40 to 50 per cent. "All [brokerages] are offering roughly the same salaries we are paying [now], including the leading banks." The company has not shut down and is open to merger opportunities, although most of the proposals Mr Iyer has seen are from foreign brokerage firms looking to sell their businesses rather than merge with an existing entity. "We will keep our offices at the DFM; if market conditions change and we find good merger opportunities, maybe we can continue," he said. Other brokerage firms are not as optimistic. Faisal Shares and Bonds Broker is no longer in operation this year, according to a secretary left to answer the phones in an empty office. A human resources manager at another local brokerage confirmed that 10 per cent of staff were dismissed last week due to the financial crisis. He declined to provide detailed comments because the firm's managers are in the midst of discussing a merger with another local brokerage house. Analysts said the cancellations could be the first wave of further withdrawals by brokers from the bourse. The Dubai Financial Services Authority has decided to refrain from issuing any public statements about the granting or withdrawal of licences. "The brokerage business is entirely dependent on market volumes, which have come off substantially and now they're at very low levels," said Ali Khan, the director of Arqaam Capital. "If volumes are collapsing, it's only natural to see participants leave the marketplace." Equity markets are struggling with low volumes and an absence of initial public offerings (IPO) mandates. The IPO market is down more than 98 per cent year-on-year, a clear sign that the equity markets are shut until market conditions improve. "The IPO market was hit during the last quarter; quite a few companies are waiting until such time that the overall investor appetite picks up again and gets restored in the market," said Nasser Saidi, the chief economist of the Dubai International Financial Centre. A research note by EFG Hermes on the performance of the UAE markets last month indicated that foreign investor outflows continued and consumer confidence had collapsed. The report stated that sustained market recovery was not expected at this stage and the economic outlook remained poor, with foreign and local investors still risk-averse and preferring cash and government bonds over other asset classes. Analysts expect brokerage houses will continue to suffer in the coming months as a result of weak investor sentiment due to unstable market conditions. "It wouldn't surprise me if they continued to pull out," said Mr Khan. [e-mail]