Abu Dhabi's deepening capital markets are becoming an engine of economic growth

ADX has attracted more than 40 new listings in the past two years. Victor Besa / The National

There is no doubt that Abu Dhabi has been steadily strengthening its position within the global capital markets sector in recent years. One of the reasons for this move into the spotlight is the emirate’s rapid economic transformation, which is intricately linked to our nation’s rise – one that has attracted the attention of institutional players and the investment community from around the world.

Against a backdrop of recessionary forecasts across international markets, our region’s capital markets are moving in a counter-cyclical way, with ADX ranking as the best-performing market in the GCC for two consecutive years. The task now is to build on the successes of the past year and continue this momentum into what promises to be a buoyant year ahead.

For much of the past five decades – and rather common for markets at this stage of maturity – the local banking system acted as the main conduit of capital as the UAE’s economy steadily expanded and diversified. As the pace of economic growth accelerated, guided by the wise visions of our leadership and fuelled by ambitious plans for economic development, capital markets operating at world-class standards became a necessity to provide maturing companies with alternative sources of capital to finance growth aspirations.

However, the establishment of an exchange is not enough to promote greater capital flows, especially in emerging markets, which tend to face typical challenges regarding the availability, diversity and pricing of capital. For markets to function well, many factors need to converge, including but not limited to a deep and broad investor base, increased liquidity, integration into global markets, sufficient and diverse issuer participation, and the development of credible benchmark assets in the form of a liquid government debt securities market.

With the support of policymakers and partners, ADX has undertaken major steps in addressing such factors to set itself apart from peers, and the facts speak for themselves.

In 2022, foreign investment on ADX increased by 54 per cent year-on-year to a record Dh24 billion ($6.53bn), supported by regulatory catalysts such as increased foreign ownership limits, while the number of new institutional investors registered on the exchange grew by 12 per cent, a further demonstration of the confidence in the emirate’s capital markets and the international appetite to gain exposure to Abu Dhabi’s vibrant economy through ADX. Liquidity has also increased significantly, aided by healthy market makers and investor ecosystem, with traded values increasing by 21.9 per cent last year on the back of a market capitalisation that has grown to over $707.87bn.

Deepening capital markets are a sign of economic development, but more than that, the continuously growing interest in Abu Dhabi’s equity and debt capital markets signals that they are becoming a true engine of growth for the local economy.

Over the past two years, ADX listed more than 40 new securities including equities, ETFs, and debt instruments across diverse and new sectors that broadened the exposure of Abu Dhabi’s economy on the exchange. Sectors have included health care, ICT, utilities, petrochemicals, consumer staples, technology, infrastructure and logistics. This year’s pipeline is strong and includes further listings of attractive state-owned enterprises and mega-corporations.

Abu Dhabi’s $1.36bn IPO Fund is already actively supporting the listing of privately-owned enterprises, and the ADX Growth Market has been relaunched to appeal to fast-growing SMEs looking to facilitate the execution of ambitious corporate objectives by providing a trusted conduit to tap regional and global markets.

Underpinning these developments is ADX’s ever-evolving suite of products and services, including the launch of a highly liquid derivatives market in 2021, the establishment of the UAE’s first SPAC framework, and the proliferation of exchange-traded funds. ADX is also collaborating with numerous parties to further enhance access and market efficiency, ranging from a technology partnership with Nasdaq to index development with FTSE. One of our most ambitious collaborative initiatives to date is “Tabadul”, a link between regional exchanges, starting with ADX, Bahrain Bourse and Muscat Securities Market, to widen the access and choice available to investors.

The outlook for Abu Dhabi’s economy over the course of this year is bright. Our local capital markets are providing a stable platform for forward-thinking companies to thrive and contribute to the growth of our economy and for investors to be part of this exciting journey. As the eyes of the world turn towards the UAE ahead of Cop28, now is the time to focus on attracting investment, building trust and highlighting the key role of capital markets in driving growth across the region.