The lessons of Abu Dhabi's stock market hitting the trillion-dirham mark

Abu Dhabi Global Market, the emirate's financial free zone, on Al Maryah Island. Alamy

This week, Abu Dhabi’s local stock market hit the Dh1 trillion ($272.3 billion) mark for the first time. On Monday, the Abu Dhabi Securities Exchange was the best performer in the Gulf and among the top gainers globally, up 33.8 per cent year to date.

The most recent driver of this trend was International Holdings Company, shares of which climbed higher on Sunday after the listing of its Alpha Dhabi unit. IHC became the most valuable company on the exchange in the process.

In the past year, it has become easier and cheaper to trade shares and the ADX has become a viable capital market better able to reflect the growth of the country and the region. There has also been a stunning level of activity recently among Abu Dhabi’s publicly listed companies.

A wave of consolidations has created potential regional champions in the consumer and tourism sectors, as well as among utilities and heavy industry. There has been the merger of Abu Dhabi National Energy Company, known as Taqa, with Abu Dhabi Power Corporation; National Marine Dredging Company and National Petroleum Construction Company have been combined; and food and beverage group Agthia acquired dates company Al Foah.

Meanwhile, Abu Dhabi National Exhibitions Company and Abu Dhabi National Hotels are set to merge. Emirates Steel will be bought by Arkan Building Materials. Additionally, Al Yah Satellite Communications, known as Yahsat, has an initial public offering scheduled for July 14, in what will be the first IPO since 2017 for the market.

A stock exchange once dominated by banks and a telecom company will now be far more representative of the diversity of Abu Dhabi's economy. That evolution might well be exciting investors in the UAE and the Gulf after the challenges of the Covid-19 pandemic. The bigger picture is also bullish despite the pandemic.

Last October, Mohammed Al Shorafa, chairman of the Abu Dhabi Department of Economic Development, projected that the emirate’s economy would expand by six to eight per cent over the next two years, with the oil sector, financial services, government spending and foreign investment driving the growth.

An investor monitors stocks on the Abu Dhabi Securities Exchange. Sammy Dallal for The National

Oil prices have also proved to be more buoyant than most expected, given where they were at points last year. The outlook for demand is strong. Added to these factors are that the UAE remains a stable environment and a trusted investment partner. The UAE was the world's 15th-biggest recipient of foreign direct investment last year, one place above the UK and seven places higher than 2019.

Updates to commercial and company laws and new rules allowing 100 per cent foreign ownership in most sectors has also boosted the business environment.

The main challenge for such an exciting growth story might actually be the pace of the changes to publicly listed companies. Speedy consolidation is desirable but this makes it harder to deliver high levels of transparency that investors increasingly expect. Over time this will be resolved as the track records of these potential champions will be evident. Until then these companies will have to work at highlighting corporate governance, and step up corporate communications and investor relations, particularly with audiences outside the region.

However, for companies, shareholders and the government, this is a rare window of opportunity. Neither is a thriving local stock exchange an end in itself. Rather it can be viewed as a snapshot of the wider economic diversification effort, which has been ongoing for a quarter-century but has picked up particularly effervescent momentum in the past 12 months.

The main challenge for such an exciting growth story might actually be the pace of the changes to publicly listed companies

The focus on health care, technology and innovation, particularly where the energy transition away from a reliance on fossil fuels is concerned, indicates the focus on a rapidly approaching future.

There is plenty of uncertainty amid technological shifts and the risk of more pandemics to come. Resilience and diversification go hand in hand. Directors, management and owners, as well as policymakers in the UAE seem to understand the urgency with which they need to act and are doing so.

Building up scale and breadth of investments, and all the time with an eye on further acquisitions both inside and outside the country, are part of the plans for these potential regional champions. The Abu Dhabi stock market is proving to be a good place to observe the execution of this vision and the strategy to keep the UAE competitive and prosperous in the decades to come.

So far, investors like what they are seeing, and the next phase over the coming few years could include significant levels of interest from institutional investors outside the Middle East, who could be drawn by the compelling economic and corporate story playing out in the UAE.

Mustafa Alrawi is an assistant editor-in-chief at The National