Market conditions force ADX to delay ETFs further

The Abu Dhabi Securities Exchange (ADX) is postponing plans to launch exchange-traded funds (ETFs) due to market conditions, its chief executive said yesterday.

Speaking during an international investment forum in Abu Dhabi, Tom Healy said the global financial crisis had delayed plans to introduce ETFs but stressed such plans remain on track.

ADX had already delayed the launch of ETFs from the end of 2008 to the first quarter of 2009, and then again to April.

UAE companies need to draw up plans to encourage foreign partners and turn them into long-term investors instead of speculators, he said yesterday.

Tom Healy, defending foreign equity shareholders in the region, said they are not to blame for the sharp decline in the Gulf bourses over the past few months, citing the absence of those investors in the Saudi bourse.

"The problem here is that our companies do not have any plans to encourage foreign investors… we have not seen any real plan to keep the foreign investors, and encourage them to stay so they will become long-term investors instead of short-term speculators and opportunist investors," Healy said.

"In Europe and other developed markets, companies always seek to attract foreign investors… they prepare plans and programmes to encourage capital inflow and benefit from it… here, we have not seen such actions… I think our companies need to draw up plans to encourage foreign investors to stay as long-term investors not just speculators… our companies can benefit from this."

Healy said foreigners should not be blamed for the sharp decline in the bourses of the UAE and other Gulf oil producers over the past year, adding that there are several other factors, including the global financial crisis.

"To blame the foreign investor for what has happened over the last year is naive… they are not the only ones who caused drastic decline in the markets… take a look at the Saudi bourse… it does not have significant foreign shareholding but it has suffered as was the case in other Gulf bourses," he said.

"There are several factors that have pushed down these markets over the past period… we should not hold foreign investors responsible for this… it is simply naive to say that foreign investors have pulled the markets here down."

Stockbrokers in the region have cited a massive sale of shares by foreign investors as one of the main reasons for the sharp retreat in Gulf markets over the past year. Other key factors included the global crisis, widespread speculation in some bourses and liquidity crunch.

After recording one of their best periods in 2007, Gulf bourses suffered from their worst year in terms of performance in 2008, with their market capitalisation plunging by at least $400 billion (Dh1.4 trillion) between May 2008 and April 2009.

In Abu Dhabi, ADX figures showed foreign ownership tumbled from around nine per cent at the end of 2007 to five per cent at the end of 2008 as most expatriate investors were forced to sell their shares to replenish a liquidity gap in other markets.

The decline was offset by a rise in national ownership to 91 per cent from 87 per cent while that of other GCC countries remained at four per cent.

Healy said a plan to launch the first of a four ETFs at ADX this month has been delayed because of the global crisis. "The market crisis is partly to blame for this delay… but the plan has not been shelved and ETFs will be launched… it's a matter of timing but it will happen."

He did not identify the first ETF but market sources said it would be launched by the government-controlled National Bank of Abu Dhabi.

In a recent interview with Emirates Business, ADX Deputy Chief Executive and Director of Operations, Rashed Al Baloushi said legislations are ready for launching ETFs and that authorities have approved the dealing mechanism.

But he said ADX had delayed the plan for ETF listing, originally scheduled for the end of 2008, in order to launch a programme to educate investors on such funds, adding that the Abu Dhabi bourse does not want to rush in introducing these sophisticated but secure instruments.


What is ETF?

ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. Its features are:

- Combine portfolio characteristics of an open-ended mutual fund with the liquidity and tradability of a listed equity share

- Traded on a stock market

- Track indices or asset classes

- Priced throughout the trading day

- Open-ended tracking funds

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