Peter Gotke, the vice president of depositary receipts at BNY Mellon, talks to Tom Arnold about what is hindering the UAE's markets.
What are the fundamental problems with UAE stock markets?
The obvious problem is the lack of liquidity and the real nub is why investors are staying out. Back in 2005 to 2008, we had a big run as hedge funds and foreign investors came looking for fast returns and as soon as the financial crisis happened they exited and the UAE got burned from a stock market perspective. It was a perfect storm and since then we've not seen a recovery.
What is your reaction to the decision by MSCI not to upgrade the UAE to emerging-market status?
The UAE got very close to an upgrade, the impact of which would have been improved sentiment and a boost to the local market. The upgrade to emerging-market status would have opened the UAE to a larger pool of investors, while remaining a frontier market carries implicit risk and restricts the number of foreign investors able to come in. The fact that regionally volumes are so low, a reaction to the global crisis, has clearly influenced the foreign investors' thinking, despite the fact that most key criteria were met (foreign ownership limits, delivery versus payment etc).
In the wake of that decision, what should the UAE do now?
The argument for attracting the right type of foreign investor is still as strong today as it has been since the financial crisis. The region must continue to engage with foreign investors, as these investors are looking for growth outside of the mature markets of the West. There remains a lot of money on the sidelines and this region can benefit from that.
What's your outlook for values and trading volumes in 2012?
I'm hard pushed to see markets getting any thinner. We expect to see the markets come back at a bit of a clip as the UAE does have a propensity to bounce back fairly quickly.
What steps can be taken by listed companies to help encourage investment?
Good investor relations and communications. In good times and bad times you have to make sure you talk to investors and use the right technology.
Can the Government or market regulators do anything to help improve stock market performance?
A catalyst is needed. Consolidation between different exchanges could be a potential catalyst. We talk to investors and they have concerns that there are three exchanges within a short geographic distance. Consolidation has already taken place in Dubai, and that's indicative of the steps the Government is taking.