Stock market trading volumes in the UAE have fallen to record lows as investors flee equities, raising the prospect of more brokerage closures and job losses.
The volume of shares traded in Dubai yesterday fell by almost two-thirds to Dh55 million (US$14.9m), from a daily average volume of Dh150m for the year. In Abu Dhabi, trading volumes were down by more than half to Dh45m from the Dh100m average for the year.
The decline in trading on the UAE's two main bourses threatens more closures among the country's brokerages, where 50 firms have already shut down this year."If some brokerages haven't closed yet, they are on the brink of closing. If they are not on the brink of closing, they are now suspended. If they haven't suspended their operations yet, they are on the brink of suspension," said Mohammed Ali Yasin, the chief investment officer at CAPM Investment in Abu Dhabi.There are 60 operational brokerages, down from 110 last year.
Investors have withdrawn from markets that have been buffeted by the impact of regional political strife and global economic worries.
The Dubai Financial Market General Index has lost about 9.6 per cent of its value this year while the Abu Dhabi Securities Exchange General Index is down 4.6 per cent.
"Brokerage houses are facing losses, losses and more losses," said one local broker who declined to be identified. "It's very hard to continue in this market.".
Fifty-six brokerages out of the 60 listed as "active" by the Emirates Securities and Commodities Authority posted losses in the first half of the year, according to financial statements on the regulator's website.The amount of money owed to local brokers rose to about Dh1.5 billion in the same period, up 3 per cent from last year.
Regulator rules prevent brokerages from closing or suspending operations unless they have received all money owed to them and have settled their own obligations.
HSBC was the first international bank to win approval to trade shares in the UAE in 2007. Its local brokerage, HSBC Middle East Securities, had a loss of Dh2.1m in the second quarter.
Rasmala, which has a venture with Royal Bank of Scotland group on Research, posted a first-quarter loss of Dh618,517. The company earlier this year said it had closed its retail brokerage operations to cut costs.
"The industry has gone into contraction. Across the board brokerages are restructuring, cutting costs, expenses and manpower," Mr Yasin said. "With every statement they say this is the last round, but lower volumes and activities are spurring more brokerages to shut down and further layoffs."Global markets tumbled last month as the US and European debt crisis prompted investor worries. Credit Suisse downgraded its GDP target for the US the year on Friday and said the probability of a mild recession had risen to 25 per cent, from 20 per cent estimated previously.As the outlook appears bleak going into next year, global markets will continue to weigh on the performance of local markets, analysts said.
"We as financial markets are under pressure from volatility in international markets," said Wadah Taha, the chief investment officer at Al Zarooni Group in Dubai. "We have direct downward correlation with global markets, but when they recover, we don't bounce back."
The main catalyst that can turn this around would be a possible inclusion into the MSCI emerging markets in December and stability across the Middle East and North Africa, brokers said. The UAE is currently considered a frontier market.