I would love to be a fly on the wall of the meeting rooms at the New York Palace hotel, where the UAE’s corporate big hitters today begin their three-day roadshow to explain to American investors why they should buy shares in the companies listed on the Abu Dhabi Securities Exchange.
There will be quite a lot of explaining to do. In my experience, United States institutions, even the most sophisticated ones, are not very knowledgeable about the finer points of investment in the region. They tend to think of the Arabian Gulf in terms of macroeconomy and geopolitics. They are concerned about the oil price, the Arab Spring, the Israeli-Palestinian peace process and the situation in Iran, rather than the intricacies of markets here.
So there is a basic job of education to be done in New York before the ADX party can begin to get across the finer points of UAE corporate prospects.
Fortunately, there are (mostly) positive things to say about these fundamentals. The oil price has been stable, trading above the US$100 mark for many months now, and there seems little on the global political front that could upset this equilibrium. In fact, all the pressure — such as the situation in Crimea — tends to argue for rising oil prices.
On the Arab Spring, the ADX party can point to the status of the UAE as a “safe haven” away from all the troubles going on in the region. On thepeace process, there is little positive news, but this has been the status quo for so long that it’s probably been factored out of the equation as a determinant of investor sentiment.
On Iran, the signs are probably the best they’ve been for some years. It is always better to jaw-jaw than to war-war, and that seems to be happening under the new Iranian president, Hassan Rouhani.
So the ADX contingent will be able to push these matters aside without too much trouble and get down to the basics. They have a powerful story to tell, if the Americans will listen.
The macroeconomic background is sound. The UAE economy is growing at a decent rate, somewhere above 4 per cent. Public finances are stable and the UAE’s public-sector debt is under control. The country is in growth mode again, from the investment in Dubai ahead of the Expo 2020 extravaganza to the continuing public investment programme in the capital. About $100 billion of public investment in the years to come is a very positive message to tell.
The ADX party will also make a big thing of the coming upgrade of the UAE to emerging market status. This will prompt a wall of cash to come to the region — about $1 billion extra, according to estimates from HSBC — and will quite simply make Abu Dhabi investable for US institutions that might never have considered it before.
The Emirati contingent will also stress the particular attractions of their leading corporates — well-capitalised, cash-flow positive and profitable. They will in particular point out the fact that dividends in the UAE are historically much higher than in the West, well into double digits compared to the low single-digit levels most US investors are familiar with. This is a big positive point for the ADX party, and should be stressed over and again to the New Yorkers.
There will be questions asked about corporate governance, transparency, liquidity and foreign ownership restrictions. The ADX answer will be two-fold: first, emerging market status has already rocked many of these boxes. US institutions can take some comfort from the fact that MSCI, the body that approves the constituents of its indexes, has given the UAE a clean bill of health.
The ADX party will also point to the fact that fine-tuning UAE markets is a work in progress, and that various initiatives are well under way to make them even more attractive. New company legislation will possibly increase the permitted levels of foreign ownership. It is noticeable that Etisalat, which allows only GCC investors, is prominent in the roadshows.
The Americans might also ask questions, and perhaps get definite answers, on the confusing state of UAE markets, where consolidation of platforms and regulators is a priority.
It is a strong story that deserves to be told, and heard.
