Dubai is at an exciting juncture in its financial history. Multiple reports state that there could be a flurry of IPOs in the near future which could massively bolster its domestic bourse and usher in a new era for the UAE’s financial markets, writes Mark Leale, head of Quilter Cheviot Dubai office and senior executive officer.
But this is just one of the levers the government are currently pulling to ignite investment.
The news that the government looks set to privatise 10 state backed companies and list some of the shares on Dubai’s stock exchange is well timed with its move away from end of service gratuity payments and the adoption of defined contribution pension schemes.
The Dubai International Financial Centre (DIFC) was the first to announce that it was going to introduce a defined contribution pension scheme and figures from this year show that it had already attracted $127m (£93.1m, €111.8m) in assets since its launch in February 2020.
The creation of these new pools of capital could be a shrewd and well-timed move by the government to support local capital markets which are seeing new and exciting potential investment opportunities come into play.
In the original DIFC request for proposal (RFP) relating to their new workplace savings scheme, it stated that: “Vendors will also need to make available a ‘local UAE allocation’ fund option should the master trustee decide that a percentage of future employer contributions are to be invested in the local economy.”
Although this section was not included in the final published rules, it is unlikely that this thought has gone too far from mind.
“Similarly, while it went on to say that the current anticipation, back in 2020, was that these schemes would allocate zero for the local UAE market, these upcoming IPOs make it a much more attractive market and one that could benefit from an injection of capital from these new and rapidly growing pension schemes.
Latterly, the RFP states that it is not envisaged that any allocation would be more than 10% of employer contributions but even so this could still amount to a sizeable flow of wealth into the burgeoning bourse.
This is a concept adopted by many pension funds around the world. An OECD report analysed the global figures on overseas investment within pension funds and while in some instances this is close to 100%, in most cases there is a reasonable allocation to local markets.
Although, at present, the Dubai market is not big enough to enable this, as the market grows in size and liquidity, together with the anticipated further rollout of DIFC type schemes, one potentially supports the other and a virtuous circle is created.
Other new initiatives like the golden visa scheme and the success of the Expo make the city-state more and more attractive to investors.
All these factors converging at the same time may of course be a happy accident but regardless of whether it was intentional or not wealth looks set to flow into the economy as we exit the pandemic and look to the future.
This article was written for International Adviser by Mark Leale, head of Quilter Cheviot Dubai office and senior executive officer.