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Why and how can you invest in the UAE stock markets

A slew of listings in the last year has added depth to the local markets

The UAE is a rapidly growing hub for global finance and investment. Its dynamic economy and strategic geographic location make it an attractive destination for investors seeking opportunities in the Middle East and North Africa (Mena) region.

There are many ways one can invest in the local markets and create wealth over the years of residency here. One of the prime avenues for investment in the UAE is the stock market.

1. Direct stock investments

One of the most straightforward ways to invest in the UAE stock market is by purchasing shares of publicly-listed companies on various UAE stock exchanges. The three predominant bourses in the UAE include the Dubai Financial Market (DFM), the Abu Dhabi Securities Exchange (ADX), and Nasdaq Dubai. Investors can buy shares of companies listed on these exchanges through brokerage firms or trading platforms. Retail investors can also directly apply for initial public offerings of companies through the DFM and ADX.

A slew of listings in the last year has added depth to the local markets and also provided good returns to investors. As of October 16, Salik, for instance, is trading at more than 56 per cent from its IPO price of Dh2. The share price of Adnoc Logistics is up 72 per cent from its listing price. Adnoc Gas’ shares are trading at more than 35 per cent from its initial public offering price of Dh2.37. These are just a handful of examples of the companies that have listed on the local bourses in the last year.

What’s interesting is, investors do not need a trading platform or a brokerage firm to apply for IPOs. Retail investors can register directly with DFM and ADX and generate respective investor numbers (NIN) to apply for stocks.

However, before investing directly in stocks, it's essential to conduct thorough research on the companies you're interested in. Analyse their financials, market trends, growth prospects, and overall industry performance. Understanding the economic landscape and regulatory environment of the UAE is vital to making informed investment decisions.

2. Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs) are investment funds that hold a diversified portfolio of assets, such as stocks, bonds, or commodities. ETFs are traded on stock exchanges, providing investors with exposure to a specific market or sector without having to purchase individual stocks.

In the UAE, there are ETFs that track the performance of the local, regional, and global stock markets, providing a relatively easy way to invest in a diversified portfolio of companies. Interestingly, ADX has recorded a significant increase in the value and volume of trading in ETFs since the beginning of this year, making it the most active and liquid ETF market in the Middle East and North Africa region.

In June 2023, ADX listed units of the Chimera – Standard & Poor's China Hong Kong Shariah ETF, which tracks the movement of Shariah-compliant Chinese stocks listed on the Hong Kong Stock Exchange.

In November 2023, it listed the Chimera FTSE Abu Dhabi 15 fund, which tracks the FADA 15 index. In August 2023, it listed an exchange-traded index fund that tracks the movement of Shariah-compliant stocks listed on the Istanbul Stock Exchange.

In addition to these three funds, the platform also includes a range of funds by Chimera covering sectors in the US, UK, Kuwait, Pakistan, KSA, Hong Kong, and Turkey.

ETFs offer diversification, liquidity, and relatively low management fees compared to traditional mutual funds.

3. Mutual funds

Professionally managed and by far the most popular choice for wealth creation, mutual funds allow investors a plethora of choices. Investors can choose from a range of funds, including equity, balanced, index, debt, or sector-specific funds based on their risk tolerance and investment goals. Retail investors will need access to a trading platform or a securities broker to invest in MFs.

4. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are investment vehicles that own and operate income-generating real estate properties. Investing in REITs provides exposure to the real estate market without the need to directly purchase and manage properties. REITs in the UAE typically invest in commercial, residential, or industrial properties. The Emirates REIT and the ENBD REIT are the largest Sharia-compliant REITs in the UAE and are listed on the Nasdaq Dubai Exchange.

5. Fixed income investments

Fixed income investments, such as bonds and sukuk (Islamic bonds), provide an avenue for investors to lend money to governments or corporations in exchange for periodic interest payments and the return of principal at maturity. Bonds and sukuk are considered relatively lower risk compared to equities and can provide stable income. The UAE government, as well as various companies in the region, issue bonds and sukuk in both local and international markets. Investors can choose from a range of fixed income options based on their risk tolerance and investment horizon.

6. Investment platforms and apps

With advancements in technology, investors can now access the UAE stock market through online investment platforms and mobile applications. These platforms offer user-friendly interfaces, real-time market data, research tools, and the ability to execute trades at your convenience. Popular investment platforms in the UAE provide access to a wide range of investment options, including stocks, ETFs, mutual funds, and more. Investors can manage their portfolios, track performance, and stay informed about market developments using these digital tools. When choosing a platform, compare the charges and commission structure.

All in all, the UAE stock market offers various investment opportunities catering to different risk profiles and investment objectives. Whether you prefer direct stock investments, diversified options like ETFs and mutual funds, real estate exposure through REITs, fixed income investments, or the convenience of digital investment platforms, the UAE presents a diverse and evolving landscape for investors to explore. It's crucial to conduct thorough research and consult with a financial advisor before making investment decisions to align with your financial goals and risk tolerance.

Suneeti Ahuja-Kohli is an independent journalist based in Dubai, UAE. She can be reached at suneetiahujakohli@gmail.com.