The volume of shares traded has fallen by more than half in each of the UAE's three bourses in the past year, a critical lack of liquidity that claimed its latest victim in Axiom Telecom's cancelled share sale.
According to research by The National, the average daily volume of trade on the Dubai Financial Market (DFM) is down 65 per cent in the year to date compared with the same period last year. The Abu Dhabi Securities Exchange and the FTSE NASDAQ Dubai UAE 20 Index are each off 52 per cent.
The declines are even more pronounced compared with the markets' boom years of 2005 and 2006.
Analysts say Axiom's surprise decision to abandon its initial public offering (IPO) is symptomatic of larger problems on local bourses, which have in large part failed to lure investors back after the onset of the financial crisis.
"The liquidity is an issue," said Chet Riley, an analyst at Nomura. "It is a difficult time at the moment to introduce international investors."
The tepid interest in UAE stocks comes as billions of dollars is flowing into emerging markets around the world in response to US monetary policy and troubles within the euro zone. The UAE equity markets have yet to see a similar benefit.
The cancellation of Dubai's first IPO in two years comes a week after Dubai officials said they were considering servicing the emirate's debt burden through future share sales.
Axiom Telecom's IPO on NASDAQ Dubai, which the company had hoped would raise as much as US$382 million (Dh1.39 billion), was cancelled at the last minute on Monday after it struggled to attract buyers.
As late as Monday afternoon, bankers were calling potential investors as the deadline approached.
"The bankers were pushing clients they had strong relationships with to subscribe. The valuations were way too rich. In a better market maybe they might have done better," said Hassan el Salah, the head of institutional trading at AlRamz Securities in Abu Dhabi.
The book was eventually fully subscribed at $0.80, the lower end of the proposed range of between $0.80 and $1.15.
More than three quarters of subscriptions came from investors outside of the Gulf region, mainly the US and Europe, but the company conceded that demand fell short of expectations. One source close to the offering said fewer than 100 investors subscribed. The company and its bankers grew concerned that demand for the shares - and as a result their price - would also not be strong in open trading.
"The reason we pulled out was a combination of deteriorating market conditions … and our desire that the shares trade well in the after markets," said Dr Christopher Laing, the managing director and head of MENA sales for Deutsche Bank.
Axiom had planned to list up to 35 per cent of its shares. The retailer is 40 per cent owned by Dubai Holding, the remainder owned by two local family groups.
The firm chose to list on NASDAQ Dubai to maintain control of the company, as the bourse requires companies to float only 25 per cent of shares. But only brokerages that are members of the exchange are permitted to trade NASDAQ Dubai stocks, which could have limited the volume of trading after the listing, Mr el Salah said.
By comparison, the DFM, which is generally more liquid, requires companies to sell 55 per cent of shares to go public.
Some analysts say the differing regulations among the bourses is a liability for local stocks because it is confusing to outside fund managers and other foreign investors.
Another factor in Axiom's decision was that retail investors were not permitted to subscribe to the offering, which is a common practice in many western markets but problematic in the UAE where retail traders account for as much as 80 per cent of volumes.
"Local IPOs without local retail investors are doomed," said Mohammed Ali Yasin, the chief investment officer at CAPM Investments.
*This article has been corrected from the original to specify that the reference to NASDAQ Dubai data referred to the FTSE NASDAQ Dubai UAE 20 Index. The National apologises for the error.
* with additional reporting by Armina Ligaya and Farah Halime