ADX 'must diversify to stabilise and grow'

The Abu Dhabi Securities Exchange (ADX) must diversify in order to stabilise and grow, a senior executive said.

Exchange-traded funds (ETFs) are an ideal diversification tool for the Gulf capital markets, Deputy Chief Executive Rashed Al Baloushi said and reaffirmed the exchange's strategy to list them.

"An ETF is a collective investment vehicle that trades on a stock exchange, similar to a listed security," Al Baloushi said at the Financial Brokerage in the Gulf Forum in Abu Dhabi.

"They offer investors a portfolio of securities that imitates the performance of a particular market or index. With just one trade, investors could have exposure to a wide variety of securities, therefore diversifying their portfolios and spreading their risk," he said.

ADX has been working with international organisations and experts specialised in ETFs, closely evaluating success of ETF products in other parts of the world and analysing the opportunities for Abu Dhabi and the wider Gulf region.

Al Baloushi cited research saying that globally, ETF uptake has been accelerating rapidly, with considerable appetite coming from South East Asian and Middle East investors. He also said that in Europe, during the first six months of this year, net sales of ETFs increased by €21.9 billion (Dh109bn), while in the same period, net sales of mutual funds decreased by €63.1bn.

The ADX may act to curb "hot money" if it causes market instability, Al Baloushi said. "We as a market have been able to attract foreign investment, which is needed because we are trying to encourage liquidity. But if we have a problem with hot money from outside, we will fix it."

Foreign holdings in ADX amount to about 10 per cent but foreigners account for about 30 per cent of total trading, he said.