Abudhabi Financial Market - Essay Example

? Abudhabi Financial Market Introduction Abu Dhabi is the capital and the second largest of United Arab Emirates. The financial market of Abu Dhabi is dominated by the banks and insurance companies of Abu Dhabi. The financial market has played a key role in the rapid growth of the energy sector and renewable energy industry of Abu Dhabi. The laws and regulation of the financial market are favorable for investment. The financial market of Abu Dhabi is on the verge of expansion with the proposed establishment of the world financial market in Abu Dhabi by the end of 2013. Executive Summary The operations of the financial markets of Abu Dhabi have been explained in this work. The various sectors, financial institution and companies comprising the financial markets of Abu Dhabi have been identified. The places of the trading in the financial markets, operational performance of the market and the risk associated with the operations of the financial market in Abu Dhabi have been explained. The rational behind the investors’ preference towards Abu Dhabi financial market has been analyzed by the estimation of risk-return trade off. The proposed plans of expansion of the Abu Dhabi financial market have been indicated through this work. The policies of the Abu Dhabi financial market in order to encourage foreign investments have been analyzed. Operations The financial market of Abu Dhabi is comprised of companies in the financial industry that includes the banking sector and the insurance sector. There are as many as seventeen banks that operate in the financial market of Abu Dhabi. There are no less than twelve insurance companies in the financial market of Abu Dhabi. The banking and the insurance sector companies are uniformly distributed in the financial markets of Abu Dhabi. Some of the major banks of Abu Dhabi are the Abu Dhabi Commercial Bank, Bank of Sharjah, Abu Dhabi Islamic Bank, National Bank of Abu Dhabi, United Arab Bank and many others. Some of the insurance companies that are doing good business in the Abu Dhabi financial markets are Al Ain-Ahlia Insurance Company, Emirates Insurance Company, Abu Dhabi National Takaful Company, Abu Dhabi national Insurance Company and many others. The banking and insurance companies in the financial market of Abu Dhabi are listed in the Abu Dhabi Securities Exchange (Sabri, 2008). Abu Dhabi Securities Exchange is the stock exchange of United Arab Emirates that conducts trading of shares and securities of the markets of Abu Dhabi that also includes the financial market of Abu Dhabi. The securities and shares of sixty seven companies in Abu Dhabi are traded in Abu Dhabi Securities Exchange. Apart from the financial sector, the companies listed in Abu Dhabi Securities Exchange also represent the services industry, industrial and hospitality sector, real estate, telecommunication, energy, etc. The various sectors whose stocks are listed in the Abu Dhabi financial market are given below with values in local currency (Abu Dhabi Securities Exchange, 2013). The Abu Dhabi Securities Exchange was established in the year 2000 for the purpose of trading of shares of the companies in United Arab Emirates. The trading locations of the Abu Dhabi Securities Exchange are at Abu Dhabi, Sharjah, Ras Al Khaimah, Fujeirah, Al Ain. The Dubai Stock Exchange is a different sock exchange in United Arab Emirates that trades shares of other public limited companies of UAE. However, some of the stocks listed in the Abu Dhabi Securities Exchange could also be traded through brokers in the Dubai Stock Exchange. The performance of the stocks of the Abu Dhabi Financial Market for the last one year is represented in the graph given below (BLOOMBERG, 2013). The above graphical representation of the performance of financial market of Abu Dhabi shows that the financial markets have undergone steady growth pattern in the last one year with less fluctuations of the performance of stocks listed in the financial market. The fluctuations or the volatility of the stocks in the financial market has also been represented in a horizontal scale as shown above. The trend of the financial market performance is shown by the blue line in the graph. The financial market has produced an annual return of around 40% in the last one year. The performance of the financial market follows the risk return trade-off. The risk associated with the performance of stocks in the financial market is measured by the volatility of the performance of the financial market. It could be seen that the returns have been steady for the first six months, i.e. in the second half of 2012. The less amount of return offered by the stock market was associated with lesser risk. This could be measured by the volatility of the market performance as shown in the horizontal scale in the above figure. During the mentioned period, the performance of the financial market did not fluctuate much or showed lesser volatility. This was the time when risk-averse investors preferred to invest in the Abu Dhabi Financial Market. During the next six months, the financial market of Abu Dhabi showed signs of comparatively higher volatility which is represented by higher fluctuations in the horizontal scale. Thus the financial market offered higher returns as a result of higher risk as represented by the rising slope of the graph. Overall the performance of the financial market is steady and has a beta value of less than one but positive which indicates that the performance of the stocks follow the performance of the market with the expected return of average stocks being lesser than the expected return of the markets. Thus the financial market in Abu Dhabi has been able to attain a balance between the risk and the return and has become a preferred destination for the investors. The risk of investment is diversified by the listing of a wide range of stock from different sectors of the economy that are not correlated to each other. The Abu Dhabi financial market has launched electronic services for the trading of stocks by the investors through online trading portal (Oxford Business Group, 2010). Owing to the rapid growth of energy sector, telecommunications industry, petroleum in United Arab Emirates, the Abu Dhabi financial markets are expected to be launched by the end of 2013 in the Al-Maryah Island of UAE. The world financial market has been planned for operation with foreign ownership of 100% with repatriation of tax and capital. The laws of the world financial market of Abu Dhabi would be based on the British system. The world financial markets would create a free financial zone with only foreign ownerships. The benefits include exemption from taxes to the foreign companies, thereby encouraging foreign investments in Abu Dhabi. There are negotiations to set up offices of the International Monetary Fund and the World Bank in Abu Dhabi World Financial Centre (Low, 2012). This step would encourage businesses to set up their establishments in the financial free zone of Abu Dhabi. All these operational features make Abu Dhabi Financial Market a preferred destination for the investors and shows promising signs of growth in near future. Conclusion Abu Dhabi financial market comprised of financial institutions, banks, insurance companies and real estate, energy and communication sector companies listed in the Abu Dhabi Securities Exchange. The performance of the financial markets is steady with controlled volatility of the stocks. This has made Abu Dhabi financial market a preferred destination for the investors. Abu Dhabi financial market is on the verge of expansion with the setting up of world financial centre by the end of 2013. This would be a free financial zone in Abu Dhabi with full foreign ownership and exemption on taxes to encourage foreign investments for economic growth. References BLOOMBERG. (2013). Abu Dhabi Securities Market General Index. Retrieved From: http://www.bloomberg.com/quote/ADSMI:IND/chart. Abu Dhabi Securities Exchange. (2013). MARKET SUMMARY. Retrieved From: https://www.adx.ae/English/Pages/default.aspx. Sabri, N. R. (2008). Financial Markets and Institutions in the Arab Economy. New York: Nova Publishers. Oxford Business Group. (2010). The Report: Abu Dhabi 2010. UK: Oxford Business Group. Low, L. (2012). Abu Dhabi's Vision 2030: An Ongoing Journey of Economic Development. Singapore: World Scientific. Read More