The stock lure: IPOs and dividend payouts are magnets for yield-hungry investors in GCC

Wali Khan , a UAE-based Pakistani telecoms engineer, has been investing in Emirates' stock markets for the past four years. Mr Khan is one among a growing wave of new investors who have flocked to the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) – the two main stock markets in the UAE – over the past few years. The robust momentum of the initial public offerings, attractive valuations as well as the visibility on healthy dividend payouts from listed companies are among some of the reasons that have helped in expanding the investor base in the Arab world's second-largest economy. The DFM, home to the largest capitalised property developer Emaar Properties and Dubai's biggest bank Emirates NBD, attracted 72,583 new investors in the first six months of 2024. Trading activity rose significantly along with trade values of stocks on the bourse amid continued economic momentum in the emirate. The Abu Dhabi Securities Exchange, the second-largest Arab stock market by market value, welcomed 50,000 new investors last year. Trading volume climbed 37 per cent year-on-year while the foreign ownership of ADX-listed companies rose by 35 per cent on an annual basis, according to the latest ADX data. The continuing momentum of listings in the UAE perhaps is the biggest lure for investors in recent quarters. Companies raised $890 million through IPOs in the second quarter of this year alone, according to PwC's quarterly IPO Watch report. Bourses in the other states of the six-member bloc of GCC have seen a similar rise in listing activity as well as stronger investor interest. Saudi Arabia's Tadawul, the biggest Arab bourse, which is home to companies like the world's top oil producer Saudi Aramco and financial institutions including Saudi National Bank and Al Rajhi Bank, led in the volume of IPO deals in the second quarter. Companies in the kingdom raised an aggregate of $1.6 billion, or 61 per cent of the total IPO activity recorded, during the period, according to the PwC report. Lower valuations of listed companies, compared to some of their peers in other emerging markets, in the UAE have also encouraged investors like Mr Khan to invest across sectors. He is currently invested in stocks including Emaar and budget airline Air Arabia , with the combined value of his portfolio of UAE stocks at Dh60,000 ($16,337). “The UAE has been proactive in its economic diversification efforts. These initiatives have not only strengthened the local economy but also increased the appeal of UAE stocks as part of a diversified investment portfolio,” he says. “The country has a well-regulated financial market. Its robust infrastructure, coupled with government policies that encourage foreign investment, further bolsters my confidence in the long-term prospects of its stock market.” Investing in UAE stocks has become increasingly straightforward due to the range of brokerage options. Additionally, many banks in the UAE now offer services that allow you to invest directly in both the DFM and the ADX. The government, as well as the markets regulator in the UAE, has also taken steps to make the country's markets more attractive to investors. The government has taken measures to boost liquidity and is encouraging more companies to list on the market to broaden investment options for investors. Through initiatives such as the Dh5 billion IPO Fund, Abu Dhabi is trying to support private sector companies across sectors to list on the ADX. In 2021, Dubai established a Dh2 billion market maker fund to provide liquidity and encourage listings from private companies in sectors such as energy, logistics and retail. The government aims to expand the size of the emirate's financial market to Dh3 trillion. Companies including Parkin, Salik, Tecom, Empower, Dubai Taxi Company, Al Ansari Financial Services, Pure Health, Spinneys, Alef Education, Adnoc Gas and Investcorp Capital have already listed their shares on the UAE bourses in the past two years. The attractive dividend policies of these companies and the forward guidance they have provided on payouts are also a major draw for investors. In June, Adnoc Drilling announced that its dividends will grow by at least 10 per cent per annum on a dividend-per-share basis until 2028, providing investors guidance on payouts they will receive in the future if they choose to invest in the company's stock. Similarly, Adnoc Logistics & Services said it aims to increase dividends by a minimum of 5 per cent every year, while Adnoc Distribution's dividend policy for 2024-2028 sets an annual dividend of $700 million or a minimum of 75 per cent of net profits, whichever is higher. Saudi Aramco expects $124.3 billion worth of dividends to be declared in 2024. Joy Dabeet, chief marketing officer at neo-broker amana, says the appetite for Mena stocks has increased over the past two years driven by a mix of the success of some of the IPO deals, as well as the overall strong performance of the market and high dividend yields. Ibrahim Masood, senior vice president of equity portfolio management at Mashreq Capital, agrees, saying the response to IPOs has been very strong in the UAE and Saudi Arabia in particular. Most IPOs in the region are structured in a way that the bulk is subscribed to by institutional investors and a small tranche, generally about 10 per cent, is allocated to retail investors, he says, adding that those tranches have been heavily oversubscribed in aggregate. Amer Halawi, head of research at Al Ramz Capital, says money has been pouring into the UAE stock markets and by extension to GCC markets over the past five years. The proof is the 80 per cent aggregate rise in the ADX and a 50 per cent rise in the DFM over the past five years. “On a blended basis, if you take both and adjust for market capitalisations, this is a 15 per cent annual return. This is in line with the S&P 500’s exemplary returns,” Mr Halawi says. “Interest for emerging markets, the oil story and the fact that the region, with Saudi Arabia and the UAE at the forefront, is working to attract foreign capital are attracting investors." There’s a realisation among the policymakers that sound, mature capital markets are a fundamental piece of the puzzle “if you want to grow your economy sustainably”, he adds. On the retail side, local and regional investors account for the bulk of investments as the regional markets are not very easy to access for offshore retail investors, according to Mr Masood. This is not unique to the region, it’s quite common across emerging markets, he says. “It’s mostly regional investors, particularly Arab, Indian, Pakistani and other investors. We also see foreign investment from Chinese, Russian as well as some British and European investors,” according to Ms Dabeet. Mr Halawi says more foreign institutions are demonstrating higher investment appetite in the region. Institutional investors accounted for 66 per cent of trading value at DFM in the first half of this year. The market fabric is changing as the markets in UAE have “historically been construed as 80:20 retail to institutional” investment, Mr Halawi says. The market is now changing structurally to become more institutional investment heavy, which is reliable for the long term, he adds. It’s a mix of banks, real estate, oil and gas, construction and manufacturing as well as some of the state enterprises that have listed shares through IPOs, Ms Dabeet points out. Investors in this region always look for yield and most recent opportunities for investors were the IPOs and secondary market offerings, particularly by Adnoc Drilling and Saudi Aramco, Mr Halawi says. “If you look at the make-up of IPOs, for example, in Dubai, it's been more utility-like sectors, such as Salik, Dewa, Empower and Parkin. These are stable businesses with high dividend yields,” he says. “In Abu Dhabi, we've seen interest in technology companies (Phoenix, Bayanat, Presight), smaller companies with AI, perhaps cryptocurrency as a backdrop, and also the oil ecosystem, where Adnoc has been very active.” Mr Masood says that besides banks, which have traditionally been well-received by retail investors, real estate has done well, especially over the last four years. Emaar Group, including Emaar Properties and Emaar Development, and Aldar in Abu Dhabi have displayed consistent performance. All these names have done well on the business side and tend to distribute dividends. These factors appeal to retail investors, he adds. Within Saudi Arabia’s Tadawul index, some mid-cap and small-cap stocks have performed much better than larger companies like Aramco and Saudi National Bank, according to Mr Masood. “That is a clear indication that discerning investors don't just buy something because it's big or ranks high on market cap scale. They pay attention to fundamentals,” he says. “It also indicates that investors favour certain themes. In the case of Saudi Arabia, the theme is domestic demand-oriented businesses because they tie into Vision 2030.” In the UAE, stocks of banks and real estate companies have performed well, as well as newer companies like Parkin. “None of these are speculative counters. When you think of retail investors, one assumes incorrectly that they can be speculative. But, looking at the recent past, that would not appear to be the case,” Mr Masood says. Mr Halawi believes the region is moving towards infrastructure, energy transition and technology. Ms Dabeet from amana says while gold remains one of the most popular assets for trading, regional retail investors are diversifying into multiple assets like cryptocurrencies, alongside trading products such as FX, futures and cash contracts for differences. Ms Dabeet picks the UAE, both DFM, and ADX, as well as Saudi Arabia's Tadawul. Mr Masood says the Qatar stock market has been soft. It did well leading up to the Fifa World Cup in 2022. "The economy is now working through digesting the excess capacity built. You see this in the performance of their equity market, too," he says. Kuwait’s equity market has been firm after the recent political developments where the parliament was dissolved and suspended for a few years, he adds. If you're a resident, you need to acquire a National Investor Number, which is valid for trading on both ADX and DFM. Apart from going physically to the ADX and DFM offices, investors can also get the NIN through the options below: 1. ADX app and/or their accredited brokerage firms 2. DFM app 3. Any accredited brokerage firm’s app (including banks which allow investments) 4. Sahmi app in conjunction with UAE Pass Investors can open an investment account with any broker listed on the DFM website. Alternatively, many banks now offer integrated investment services through their apps, allowing trade directly from the bank account. Review and understand the fee structure of the chosen broker or bank. Once the investment account is set up and funded, an investor can start trading through the broker or the bank platform. They should research stocks, place orders and then manage their investments. Courtesy: Wali Khan, investor

The stock lure: IPOs and dividend payouts are magnets for yield-hungry investors in GCC

Most recent issuances have been heavily oversubscribed, indicating strong demand from local and regional investors, experts say