After months of discussion and debate, the Abu Dhabi Securities Exchange (ADX) will launch its first exchange-traded fund (ETF) today. The ADX is forming a partnership with National Bank of Abu Dhabi, which will offer the fund, according to a source familiar with the arrangement. Officials of the bank and the exchange declined to comment, but they announced plans to host a joint press conference today.
An ETF tracks a basket of shares or an index but trades like a single share as the underlying value of the assets changes during the day. They have become extremely popular in the past decade among investors in the US, Europe and Asia but have yet to take off in the Middle East. The exchange has been planning to launch ETFs for more than a year but delayed the move because of unfavourable market conditions. The introduction of this new trading tool is seen as a way of attracting foreign investors and liquidity in general.
"This gives more tools for investors to invest in the general market. The more tools that are provided, the more efficient the market becomes," said Saad al Chalabi, an institutional trader at Al Ramz Securities, which is based in Abu Dhabi. It is unclear when the new security will begin trading, but the source said the plan was to list it this week. If so, ADX would become the first bourse in the GCC to offer an equity ETF.
Last week, Saudi Arabia's Tadawul announced it would offer foreign ownership of Saudi stocks through ETFs, but trading has not yet started. If the ADX product is successful, it will provide a much-needed revenue stream for the exchange. Mr al Chalabi said it could take a little time for arbitrageurs, brokers and all market participants to create a secondary market for the product but eventually there could be a wide variety of ETFs available to investors.
"Any extra tool in the market is always good because more participation makes it harder for people to manipulate prices," he said. @Email:firstname.lastname@example.org