UAE Capital Markets Forge Partnership with HKSE

The Hong Kong Stock Exchange (HKSE) has officially recognized the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) as part of its list of recognized marketplaces. This strategic move opens new opportunities for UAE-based companies to pursue secondary listings on one of Asia's premier financial markets.

This development follows the inclusion of the Saudi Exchange (Tadawul) in 2023, underscoring the growing financial connections between the Middle East and Asia. Saudi Arabia led the Gulf region in initial public offerings (IPOs) in the first half of 2024, raising over $2 billion from 19 offerings, accounting for approximately 60% of the region's total IPO proceeds.

Andrew Tarbuck, partner and head of capital markets at Al Tamimi & Co, a Dubai-based law firm, believes this development provides UAE-listed companies with "clearer paths" to access Asian liquidity pools. "This is a strong indicator of the growing maturity of the UAE capital markets and its securities exchanges, as well as the commercial relationships between the UAE and Asia," Tarbuck told AGBI. He added, "The Hong Kong Stock Exchange conducts thorough due diligence before adding a stock exchange to its Recognized Stock Exchange list, marking a significant validation of the UAE exchanges on the global capital markets stage."

In recent years, Abu Dhabi and Dubai have part-privatized many government-owned companies, leading to a surge in IPOs, contrasting with slowdowns in other regions. As of March 2024, the Hong Kong Stock Exchange is the eighth-largest stock exchange globally, with an equity market capitalization nearing $4 trillion, according to Statista.

Tarbuck highlights sectors such as technology, infrastructure, healthcare, education, and sustainable assets like electric vehicles as likely beneficiaries of this development. Linda Lam, head of equity advisory for North Asia at UBP, noted that Saudi-listed infrastructure and energy companies could complement Hong Kong's market, which is predominantly composed of financial institutions, including banks, insurance companies, and Chinese internet firms.

"Hong Kong's role as a super-connector with mainland China allows for a deep capital market and a rich pool of talent for international companies, including Gulf companies," Lam stated. Vijay Valecha, CIO of Century Financial, pointed out that Hong Kong offers Gulf companies unique growth opportunities due to closer economic and cultural ties with Asia, potentially fewer regulatory hurdles, and better access to Chinese and broader Asian markets compared to US or European exchanges.

However, dual listings come with challenges, including compliance with two sets of regulations and managing country-specific risks. Despite Hong Kong’s recognition of Tadawul last year, there has been minimal activity regarding secondary listings. Valecha suggested that strategic hesitancy among Saudi companies, complex regulatory environments, and economic slowdowns in Hong Kong could be contributing factors.

"Last year's market conditions, exacerbated by issues in the real estate sector, have made companies cautious," Valecha said. "However, as conditions stabilize, we can expect increased interest from Saudi firms, enhancing capital access and fostering stronger economic ties between the Gulf and Asia."

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