ADSM in action

12 June 2006
The federation's bourses staged a rally in late May and early June, with the Abu Dhabi Securities Market (ADSM) rather than the Dubai Financial Market (DFM) the unusual focus of investor interest. The Shuaa UAE index climbed by almost 4 per cent in the week to 7 June. Talk is also intensifying about potential regulatory changes in the pipeline.

The ADSM was given a lift by the Abu Dhabi Retirement Pensions & Benefits Fund's announcement in early June that it planned to invest in local stocks to take advantage of low valuations, pushing the ADSM Index up by 8.1 per cent in the week to 1 June. The news first tempted institutional investors into the market, and others followed. Turnover also rose sharply on the exchange, where activity usually pales in comparison to the DFM. Trading value hit a six-month high of AED 4,010 million ($1,093 million) on 3 June. Banks and other blue chips did particularly well on the expectation that they would be prominent among the fund's targeted stocks.

Abu Dhabi Islamic Bank (ADIB) was the main mover. The bank's share price shot up by more than 20 per cent on talk of it staging a share buy-back and allowing foreigners to own shares. However investors' excitement was calmed by a letter sent by ADIB's management to the Emirates Securities & Commodities Authority on 6 June denying that any such decisions had been taken. ADIB's share price fell by 9.6 per cent the following day, during what was generally a more bearish session.

Traders' sudden shift in focus sucked liquidity from the DFM. However, Emaar Properties' shares continued to recover ground lost during the market slump, breaking back through the AED 13 ($3.50) barrier and closing at AED 13.15 ($3.58) on 7 June, up 3.5 per cent from the previous week's close. The company also announced plans for multi-billion-dollar investments in Pakistan and the acquisition of US private residential developer John Laing Homes.

Changes to the rules governing initial public offerings (IPOs) have been long-awaited. Public share sales of greenfield companies have been suspended since last year pending new regulations. Some details of the amended Companies Law's progress emerged in early June. Officials at the Economy & Planning Ministry said draft legislation was with a ministerial committee for revisions, and that the guidelines were expected to set at 30 per cent the minimum proportion of a company's capital to be sold during a flotation. Under the old rules, at least 55 per cent had to be offered, discouraging family businesses from going public and thus losing majority control.

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