UAE stock markets’ MSCI upgrade lifts profile of investor relations

The promotion of the UAE stock markets to the MSCI Emerging Markets Index has reinforced the investment landscape, and now it is time to take it to the next level.

Above, traders at the Abu Dhabi Securities Exchange monitor the movement of stocks. Delores Johnson / The National
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There has been much speculation about the effect of the UAE's inclusion in MSCI's Emerging Markets Index – both on the indexed companies and the wider market in general. Although overall sentiment towards the upgrade seems to be positive, it remains to be seen what the tangible effects will be and how the upgrade might change the way UAE-listed companies interact with the investment community over the longer term.

National Bank of Abu Dhabi's group chief executive Alex Thursby believes that "MSCI inclusion for the medium to long term will lead to stronger confidence in the UAE markets. The country has a very strong economy and strong companies, and the MSCI upgrade will give international investors further confidence to invest." The performance of the UAE's equity markets has certainly captured the attention of the global investment community, leading to a rise in trading volumes on UAE exchanges. Mr Thursby confirms this: "We have certainly seen an increasing level of interest in NBAD from investors focused on emerging markets since the announcement."

Increased investor interest necessitates higher levels of interaction between the C-level executives and the investment community. “We believe it is critical for investors to have frequent interactions with our top executives, and we are continuously looking for new and innovative ways to reach out to investors,” says James Burdett, the group chief financial officer at NBAD, who regularly interacts with investors during conferences and investment forums.

Investor relations departments, which are dedicated to attracting, managing and communicating with the investment community, are gaining importance as a result of the MSCI inclusion. The Middle East Investor Relations Society, which has been working with listed companies across the region to promote international best practice investor relations (IR) since 2008, has already benefited from considerable improvement in this area since the financial crisis. But a new breed of emerging market investors is expected to be more demanding in terms of transparency, disclosure and the quality of their dialogue with companies.

“We will effectively have to rethink the way we have been running IR in the past,” says Adnan Chilwan, the chief executive of Dubai Islamic Bank.

The companies that find themselves included in the index already constitute some of the leaders in IR. Their top executives grasp its importance as a strategic management function and work closely with a dedicated IR team to strengthen the bond with the investment community.

“I see this interaction growing significantly because the strategy of growth unveiled for the UAE will make this country an increasingly attractive investment opportunity for global institutional players,” adds Mr Chilwan. In his view more and better information and a culture of transparency is no longer a matter of choice. “I am a big advocate of putting the story in the open and allowing the investment community to make informed and educated decisions based on facts rather than hearsay.”

Allocations by passive funds to the UAE will mean greater appetite in UAE equities from active investors and an inflow of foreign capital from global financial centres like London or New York, where many dedicated emerging market investors are headquartered. MSCI index constituents, such as DP World, are also using this opportunity to keep ahead of the curve by seeking out investors from new geographies.

“We keep a close eye on the emerging markets asset base and earlier this year we went on a roadshow in Asia after learning that the region had the fastest assets under management growth over the last three years,” says Yuvraj Narayan, the chief financial officer of DP World. His company has also organised investor roadshows showcasing DP World’s flagship ports in Peru and Brazil.

The realisation that MSCI represents an opportunity to grow the UAE market to the next level is apparent to senior management of some of the Middle East Investor Relations Society’s member companies. Many of our members are increasingly aware that they will need to work hard to enhance IR practices to retain the interest of international fund managers.

“Post the recent economic period, trust and transparency have become cornerstones of any investment decision,” says Mr Chilwan. “Our communication is critical to building our reputation and we will continuously evolve not just the investor relations but our corporate communication and corporate governance to ensure that the faith and trust the investment community has in us remains robust and strong.”

All the executives interviewed in this article agree that the MSCI upgrade is testament to growing confidence in the UAE market thanks to the strong performance of local companies and the continuous improvements made to the regulatory environment. Mr Narayan would like to see "continued focus on growing the IR role from all listed entities to further improve the strong reputation of the UAE". In this context the Emirates' Securities and Commodities Authority has taken a visionary step by compelling all listed companies in the UAE to have an IR function.

There is also a consensus that the upgrade will not only encourage more listings on the ADX, DFM and Nasdaq Dubai, but will also have a positive spillover effect on neighbouring markets. The UAE's listed companies can be a catalyst for the wider region by demonstrating that greater transparency and improved IR are linked to positive effects on liquidity and the maturity of regional markets.

Oliver Schutzmann is vice chairman of the Middle East Investor Relations Society, and head of investor relations and corporate communications at Shuaa

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