ADX chief blames lack of liquidity for shares slump

MARKET VIEW: Abu Dhabi's shares value was hit hardest by the lack of liquidity in the banking sector during H2 of 2008. (Getty Images)

The lack of liquidity in the UAE banking sector was the main reason for the fall in share values in the second half of 2008, not the drop in oil prices, a stock market chief said on Monday.

Tom Healy, CEO of Abu Dhabi Securities Exchange (ADX), outlined the impact of the global credit crunch on the region in a speech to the World Exchange Congress in Monaco.

“Diversification, strategic partnerships, increased institutional participation and increased co-operation between the Gulf capital markets will help the GCC stock markets recover from the impact of the recent economic downturn," he said.

“The fall in oil prices and the fact that foreign investors had to sell out of emerging markets to cover positions in their home markets had an impact on ADX, but these were not the main reasons stock market prices in Abu Dhabi fell in the second half of 2008," he added.

“The lack of liquidity in the banking sector meant the stock exchange became the only source of cash for many investors, who needed liquidity, so they had to sell. This was the primary reason."

Healy claimed that despite the difficult market conditions, large financial and energy reserves coupled with powerful government-driven economic diversification strategies meant that stock markets in the Gulf region were likely to recover more strongly than other emerging and some more developed markets.

“GCC economies and their stock markets have very strong and solid fundamentals supported by their financial and energy reserves, as well as forward-looking governments”, he said.

He also supported the idea of a GCC capital market, saying it would appeal to long-term institutional investors, who would have a stabilising effect on the market.

“GCC stock markets should embrace the idea of a GCC-wide capital market. By this we mean more harmonisation and co-operation especially in relation to regulation, information display and settlement.

"This need not threaten the individual national exchanges, as the experience of the US and the Eurozone demonstrates that a single, or common, capital market can be built on multiple exchanges."

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