The Dubai Financial Market's (DFM) second-quarter profits dropped by 80 per cent as poor trading volumes took their toll on the Gulf's only listed stock market. The DFM's profit in the period dropped to Dh25.9 million (US$7m) from Dh128.3m in the same quarter last year. First-half net profit fell 57 per cent to Dh79.5m from Dh186.7m in the first half of last year, the DFM said yesterday.
"Over the recent months we heavily mobilised many resources to consolidate DFM with NASDAQ Dubai for the benefit of the investors and the DFM Company," said Essa Kazim, the managing director and chief executive of the DFM. "The revenues and profits have been affected by the declined trading value [in the second quarter] compared to [the first quarter]." The results cap a disappointing period for the bourse, which has been the worst performing exchange in the region so far this year.
The DFM's revenue was knocked by a 32 per cent decline in trading value in the second quarter of the year to Dh19 billion compared with Dh28bn in the first quarter. The DFM also completed the purchase in May of two thirds of NASDAQ Dubai, the emirate's smaller exchange. Dubai's two stock markets this month started to trade on a single platform. The step was aimed at boosting levels of liquidity as trading volumes flagged in recent months due to concerns about Dubai World's debt restructuring and the global economic recovery losing momentum.
The bourse is dependent on commission income for revenues but a continuing shortage of liquidity has dragged trading value down. "Volumes are down and that's the main driver for the stock," said Ali Khan, a director at Arqaam Capital in Dubai. "The numbers are well below where they should be at the midpoint of the year and it's difficult to see how this will improve." The remaining summer months are not expected to provide any relief to the exchange. Low trading volumes next month are expected to be exacerbated by the start of Ramadan in the middle of August.
The stock closed at Dh1.52 on Thursday but Mr Khan said it might move lower to price in weaker revised expectations from analysts. While a conclusion to Dubai World's $23.5bn debt restructuring may help to improve trading volumes, a bigger catalyst is expected to be an improvement in corporate earnings and a healthier outlook for banks. Officials at the DFM say its consolidation with NASDAQ Dubai will be an advantage for investors.
"The operational and back office consolidation between the two exchanges will bring many benefits to our investors, who have already started to observe these benefits and will fully recognise the benefits in the medium term," said Mr Kazim. Nonetheless, some financial experts argue a merger with the country's other bourse, the Abu Dhabi Securities Exchange (ADX), may be necessary. Talks about the prospect of a tie-up between the two have been held at governmental level. Analysts say such a move would help to raise the profile of the UAE in the eyes of international investors.
tarnold@thenational.ae