June 16 (Bloomberg) -- Almost 90 percent of brokerages in the United Arab Emirates, including units of HSBC Holdings Plc and Rasmala Holdings Ltd., reported first-quarter losses as political unrest and debt restructurings pushed trading volumes to six-year lows.
Of the 64 brokerages listed by the U.A.E.’s Securities & Commodities Authority as “active,” 56 posted losses in the quarter, according to financial statements on the regulator’s website. Five brokerages reported declining income, two returned to profit and one had a yearly loss.
“Brokerages are a function of the market value, and that value has dropped significantly,” said Mohammed Ali Yasin, chief investment officer at Abu Dhabi-based financial services company CAPM Investments PJSC. “It’s a constant challenge and it doesn’t look like things will improve in the second quarter.”
Dubai’s benchmark index slumped 81 percent since reaching a record in 2005 to 1,601.55 yesterday as the global financial crisis shut access to credit and forced state-owned companies like Dubai World to restructure. The volume of shares traded in Dubai plummeted to a daily average of about 116 million in the first quarter, the lowest in six years. In Abu Dhabi average trading values were down 27 percent in the first quarter at 117 million dirhams from the year-earlier period.
Investor sentiment was hurt by the popular unrest in the Middle East that ousted leaders in Egypt and Tunisia. Dubai World reached an agreement with its lenders in March after roiling global markets in 2009 with plans to restructure about $25 billion of debt. Dubai Holding LLC and property developer Nakheel PJSC are in talks with creditors to restructure a total of about $20 billion.
“The industry has been suffering for some time now, as volumes in the U.A.E. continue to decrease year on year,” said Saad al Chalabi, an institutional trader at Al Ramz Securities in Abu Dhabi. “Most of these brokerages started out when the market was trading over 1 billion dirhams ($272 million) on average, we now average 15 percent of that.”
The U.A.E. has three stock exchanges -- the Dubai Financial Market, Abu Dhabi Securities Exchange and Nasdaq Dubai. The DFM General Index rose 2.2 percent yesterday and Abu Dhabi’s ADX General Index advanced 1.2 percent on optimism the U.A.E. will be upgraded to emerging market status from frontier at index provider MSCI Inc. next week.
“The main catalysts that can turn this around would be a possible inclusion into the MSCI emerging markets and political stability across the Middle East and North Africa,” said Al Chalabi of Al Ramz.
HSBC was the first international bank to win approval to trade stocks in the U.A.E. in 2007. Its local brokerage, HSBC Middle East Securities LLC, had a loss of 2.1 million dirhams in the quarter. Rasmala, which has a venture with Royal Bank of Scotland Group Plc on research, posted a first-quarter loss of 618,517 dirhams. The company said last month it closed its retail brokerage operations to cut costs.
EFG-Hermes Brokerage UAE LLC, Abu Dhabi Islamic Securities, First Gulf Financial Services, Mashreq Securities and Al Sahel Shares Center said net income in the quarter fell. Atlas Financial Services & Brokerage House Securities returned to profit.
--Editors: Shaji Mathew, Claudia Maedler.
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