UAE economic recovery fuels broker growth

Abu Dhabi and Dubai bourses’ surge this year has helped to boost the fortunes of the country's brokerage industry.

For the country’s brokerage firms, bread and butter income is from trading commissions and they are benefiting from a significant rise in market activity, posting a second consecutive quarter of overall profitability last month.

That has reversed a string of losses since the global financial crisis.

“The trend is here to stay,” says Wafic Nsouli, the executive director of institutional sales at Arqaam Capital, an investment bank in Dubai.

“UAE governments, corporate and households in much better shape post the crash and equity volumes are reflecting both this and the reflation of real asset values.”

Net income for the third quarter reached Dh79.3 million for the 47 companies that trade on the Abu Dhabi Securities Exchange and Dubai Financial Market.

That is higher than the profit recorded in the previous quarter of Dh64.3m. Losses reached Dh48.15m in the third quarter of last year.

Dubai’s benchmark index, ranked second globally in US dollar terms, has surged about 85 per cent this year. The Abu Dhabi Securities Exchange General Index, ranked third globally, has jumped almost 50 per cent in the same period.

Indeed, the Emirates’ share markets rally has dramatically improved the fortunes of the brokerage industry, which had been consolidating and restructuring following the global downturn.

“It doesn’t take a genius. Trading volume is up, less competition, the approaching MSCI inclusion that would bring more volumes,” says Tariq Qaqish, the head of asset management at Al Mal Capital in Dubai. “Of course it’s better.”

The international index compiler MSCI, which tracks US$7.3 trillion in equities around the world, in June classified the UAE as an emerging market, an upgrade from its previous designation as a frontier market. Traded value on the country’s bourses reached Dh72.25 billion in the third quarter, compared with Dh13.08bn in the same period last year, a more than five-fold increase.

“The graduation of UAE to the MSCI EM index has brought the market to the attention of a whole new band of investors,” Mr Nsouli says. Following the establishment of Dubai’s financial free zone in 2004, western lenders flocked to the emirate to capitalise on a range of activity from taking companies public to advising on sovereign fund mandates. But the global financial crisis cut access to credit in the emirate, triggering a major sell-off across Dubai’s banking and property sectors.

From 2005 to 2011, the emirate’s index lost more than 80 per cent of its value. Traded value on the UAE markets also dropped from Dh537bn in 2005 to a trough of Dh57bn.

Investment banks, whose key businesses include equity research and brokerage services, were forced to rethink their business presence, leading to retrenchments and the closure of their loss-making divisions.

As market liquidity dried up in the country, HSBC decided to shut its local brokerage and service its institutional clients through its global hub.

Its decision was significant to the industry as it was the first international bank to secure a licence to trade on the local bourses.

There are today 47 equity brokerages operating in the UAE, down from 103 in 2010, according to the website of the financial regulator.