DFM crosses 5,000 points barrier for first time since 2008

The Dubai Financial Market in Dubai. Pawan Singh / The National

The Dubai Financial Market General Index closed above 5,000 points on Tuesday as investors flock to the bourse ahead of the country's MSCI Emerging Markets upgrade.

It was the first time since July 2008 that the Dubai index breached the psychologically important barrier. HSBC predicts capital inflows of $370 million will result from the MSCI upgrade as passive investors gain automatic exposure to the country’s bourses.

The index closed just shy of 5,019 points.

“We’re seeing the last stages of a very long bull run that started in the first quarter of 2013,” said Sanyalaksna Manibhandu, a senior analyst at NBAD. “Everyone is looking at the implementation of the MSCI upgrade.”

Gains were driven by the listed shares of the bourse’s operator, DFM, which gained 4.6 per cent; Dubai Islamic Bank, which gained 4.2 per cent; and Shuaa Capital, which closed up 3 per cent,

A number of companies traded on UAE bourses have lifted their foreign ownership restrictions in recent month, in a bid to increase their chances of inclusion in the MSCI index.

Inclusion requires that companies’ shares have sufficient “foreign room” – which means that more than 15 per cent of floated shares be available for purchase by foreign investors.

Deyaar Development received approval from the DFM to increase its foreign ownership limit to 25 per cent on Monday. Dubai Islamic Bank last week received regulatory approval to increase its foreign ownership to 25 per cent, from 15 per cent.

“By raising the foreign ownership limit you’re putting yourself in play,” said Mr Manibhandu. “It’s worth trying for – once you’re in, you’re seen as the proxy for the market. That’s why you’re seeing DIB and Deyaar lift their foreign ownership limit. But that doesn’t guarantee inclusion.”

The country’s banks have relatively high foreign ownership thresholds. Abu Dhabi Commercial Bank has a foreign ownership limit of 49 per cent, while both NBAD and First Gulf Bank allow a quarter of shares to be held by foreign nationals.

The current Companies Law requires that 51 per cent of all companies registered outside of free zones in the UAE must be owned by Emiratis.

In March, Dubai Investments raised its foreign ownership limit to 35 per cent from 20 per cent, and Union Properties increased its limit to 25 per cent in February.

Deutsche Bank predicts that Emaar, National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank, Union National Bank, Investment Corporation of Dubai and Union Properties will be included in the MSCI index.

“There are good reasons to be long on equity,” said Mr Manibhandu. “But if you’re overweight right now you should be looking to bring down your weighting pretty soon and certainly before the second of June (when UAE MSCI trading officially starts).”

Follow us on Twitter @Ind_Insights