6 reasons why so many UAE residents trade stocks and shares

Unsplash/Joshua Mayo

The UAE has ranked fifth in a new study revealing the countries most obsessed with stocks and shares trading worldwide. Here I look at some of the possible reasons, from a personal point of view.

1 UAE expats may have a high disposable income

With zero income tax, as well as no taxes levied on dividends and interest, many UAE residents have some of the highest levels of disposable income of any country in the world.

Dubai is ranked 11^th for the average amount of disposable income residents have available after accounting for accommodation rental costs. Expats in Dubai earn more than any other city in the Mena region or indeed than in most of the global cities.

Many expats in the UAE have more disposable income than they had back home and therefore have the ability to be part-time traders.

Disposable income is calculated on the personal income of an individual’s total income received from all sources including wages, salaries or rent before tax deduction.

Some western countries can have income tax as high as 52 per, but the net salary in the UAE is higher because of low taxation.

2 Expats tend to take more risk

If you live an expat lifestyle, your financial interests and obligations may be international or global. You may be paid in a foreign currency, have a spouse who is a different nationality, and have children who feel at home in places all over the world.

Your home, assets and liabilities may be scattered, you may pay tax in more than one jurisdiction, and may want the option to retire in a number of places.

To match your situation, you may want an investment portfolio that’s equally global, flexible and perhaps matches the risk you took in becoming a global citizen. Self-trading certainly ticks all those boxes. 

3 Many DIY invest

Do-it-yourself investing is very much in the news these days. But only time can tell how long this fad will last. It is essentially an investment approach where the investor chooses and manages their investment portfolio instead of hiring the services of an expert or a financial advisory service.

DIY investing is not as simple as it sounds. There are two prime requirements for it: availability of time for research and adequate knowledge.

When the stock market is going up continuously, most DIY investors feel that nothing can go wrong.

If their stocks are doing well they tend to attribute their success to their investing knowledge and a ‘golden touch’ rather than the overall performance of the broader market. This gives them a false sense of over confidence.

4 Young population

In 2020 the forecasted largest age group in the UAE was those between 30 and 34 years, at around 1.8 million. The second largest age group in the country was between 25 and 29 years, at around 1.4 million.

Younger people tend to take more risk. However, the trick is to consolidate the wins and de-risk where possible.  

5 Social media ‘millionaires’ and celebrity endorsement

It seems that appearing wealthy on social media has become its own industry. Wannabes looking to ‘flex’ on Instagram and TikTok are using Photoshop, renting luxury goods and in rare cases, committing criminal fraud.

But if Instagram is your lens on the world, then you might be viewing a warped reality. Multi-billion-dollar industries are built around the ‘influence’ peddled by popular online figures whose followers have never laid eyes upon them in real life and who almost always appear independently wealthy. 

Famous people have promoted products for centuries. Cryptocurrencies recently tapped celebrity associations, but a notable bankruptcy and the industry’s slide have led to serious financial fallout for many investors. 

Such unfortunate events beg the question: should celebrities ever play the roles of investment advisers? Even when products have little connection to specific talents, star-studded endorsements are often effective.

With a youngish population and celebrity endorsements of certain financial products in the UAE, it potentially creates the perfect storm.  

6 Platforms spending on videos and educating 

Complex investment products have exploded in popularity in the last few years, particularly as self-directed investors have been trading at home during the coronavirus pandemic.

Individuals have been helped by the countless educational videos that trading platforms provide to their customers to encourage them to continue trading. Huge budgets are allocated into producing such videos so they provide comfort and create the illusion that a retail investor therefore knows what they are doing.

Dubai can often be described as sales on steroids and the marketing of such platforms often fit that bill. 

Rupert Connor is a partner at Abacus Financial Consultants