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Good or bad time to launch first-ever ETF for UAE stocks?

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The National Bank of Abu Dhabi has today launched the first-ever exchange traded fund in Arabia that covers the 25 most actively traded UAE stocks. It is listed on the Abu Dhabi Stock Exchange, and makes its debut just a day before Saudi Arabia gets its first ETF. Both are open to local and foreign investors.

The minimum investment is a bit steep at almost $136,000 and is clearly aimed mainly at foreign institutional investors to help reduce market volatility.

Blue-chip ETF

The NBAD OneShare Dow Jones 25 ETF will comprise stocks listed on the three trading markets of the UAE. Financial and real estate stocks make up 56 per cent of the fund, while no single share will account for more than eight per cent.

The ETF will be traded and quoted like other securities on the Abu Dhabi Stock Exchange. The Dow Jones UAE 25 index is off nine per cent this year, and up 35 per cent in the past year. Meanwhile, Falcom Financial Services is to offer the first-ever ETF in Saudi Arabia from tomorrow, with further details awaited.

Now this is indeed an attractive way for foreign institutions, and high net worth individuals to invest in the UAE stock market. UAE stock markets crashed in late 2005 and have not recovered since. A market bottom could be close and a major buying opportunity evident.

Indeed, the imminent settlement of the $26 billion Dubai World debt rescheduling might be the signal that the worst uncertainty is over and that markets will make progress from here. Certainly the UAE bourse looks undervalued in relation to the much better recent performance in Saudi Arabia.

Global clouds

However, what if global financial markets choose this as a moment for a correction, and oil prices slump as they did in late 2008? Then the UAE bourses will doubtless be dragged down yet again, perhaps this time to a real bottom.

In stock markets timing is everything. All the same putting money into the long-term future of the UAE does look a winner with its low extraction cost energy sector and huge hydrocarbon reserves, progressive leadership, ambitious expansion plans and net creditor nation status.

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Written by Peter Cooper

March 25, 2010 at 9:11 am

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