Interview: Mahmood Ebraheem Al Mahmood
How does Abu Dhabi’s position between the financial hubs of Europe and Asia affect the allocation of funds, capital and credit across regions?
MAHMOOD EBRAHEEM AL MAHMOOD: Abu Dhabi sits between the major markets of the east and the west, acting as a business bridge between Asia and Europe, but the advantage of its physical location has now been surpassed by the financial opportunity which the UAE offers to both of these regions. Abu Dhabi is becoming a very important financial centre for two main reasons: it is the focal point for a region undergoing important changes; and it is a new emerging market.
The UAE has always been a business gateway for the GCC, and this will continue as countries in the wider region look to open up their financial interests. The role of the central bank and the regulators will be key to creating and maintaining an efficient and high-quality financial sector. Furthermore, attracting and retaining investment in the region will help create a greater range of products and services.
This role has been further enhanced by the UAE’s move to emerging market (EM) status on the MSCI index. The immediate benefit of the transition away from a frontier market may not have been clear initially, but the advantages are now being felt. In all the major investment markets, asset managers are moving away from traditional EMs, which are struggling through the current economic downturn. But these managers still need to allocate funds to EMs, so they are looking to the UAE and Saudi Arabia – when its status is changed in 2016 – for their asset allocation. These markets meet the criteria in terms of risk and return and allow asset managers to move investments from EMs like Brazil and Egypt.
The funds coming into the UAE markets will help balance the investor profiles. It is advantageous, for regional markets need to have a higher percentage of long-term institutional traders who are investing alongside the very active retail buyers.
To what extent do you expect to see a further increase in companies seeking dual listing?
AL MAHMOOD: For some time the UAE has been looking for companies to dual list. This is seen as beneficial to the UAE for a number of reasons. If companies list in Abu Dhabi, capital from local investors stays in the region and is not sent overseas. This has immediate benefits for the country as well as the exchanges, adding liquidity to the markets. There are also benefits for companies coming to dual list in the UAE as it provides them with access to new sources of capital. This is especially true for large companies, which are often from relatively small markets where the main investors are probably already “overweight” with their stock, or for companies looking for further investment capital in a very crowded market sector.
The use of dual listings also allows the exchanges to diversify their sectors, providing investors with greater choice. At the moment, the regional exchanges are dominated by telecommunications companies, construction firms and financial institutions, with investors having to move capital to other markets if they want to diversify into, for example, technology, retail or health sectors.
How is foreign exchange trading impacted by the strength of the US dollar and lower oil prices?
AL MAHMOOD: 2015 will be remembered for its high level of market volatility, mainly caused by the question of when the US Federal Reserve would introduce a rate hike. It was expected in January, then the decision was pushed back to March, then June, September, October and finally December. This created a real trading opportunity for investors, along with associated moves for the euro, the sterling and the yen. All UAE companies with international operations will have had to look at their currency exposure. The good news for these companies is that the ability to advise and hedge positions is now available from Abu Dhabi.
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