#SaudiArabia, #UAE Market Fortunes Diverge; Neom’s ‘Line’ Is Under Review
In the Middle East’s financial landscape, the stark contrast between its two largest markets, Saudi Arabia and the United Arab Emirates (UAE), is becoming increasingly pronounced. This divergence is highlighted by the differing year-to-date performances of their main equity indices. Saudi Arabia’s main index has seen a decline of over 8%, mirroring the slide in Brent crude prices, while stocks in the UAE are enjoying a robust rally, with Dubai’s benchmark index climbing approximately 18% and Abu Dhabi’s index rising nearly 10%.
The UAE’s market surge is driven by strong economic fundamentals and a flourishing real estate sector. In Dubai, apartment prices have soared by an astonishing 122% over the past five years, as reported by Deutsche Bank, with rental costs rising by nearly 50%. This buoyancy is fuelling the pipeline for initial public offerings (IPOs), with numerous property-linked companies, including contractors and online real estate platforms, preparing to go public.
Investor sentiment has also been revitalized following successful listings earlier this year, including a residential real estate investment trust (REIT) and a technology firm. These have helped dispel investor concerns that lingered after a series of underwhelming debuts in late 2024.
In an interview, an industry executive highlighted the growing local demand and the Middle East’s emergence as a viable option for companies seeking to list: “We have the right level of demand, the right level of pricing, and the transactions are performing well in the aftermarket.”
Conversely, in Saudi Arabia, the region’s busiest IPO hub with over $3 billion raised this year, market sentiment has somewhat cooled. Recent IPOs like Flynas and Specialized Medical have underperformed, contributing to investor caution in the face of fiscal challenges driven by fluctuating oil prices.
This has led to a shift towards a more “rational” market tone, shedding the assumption that every IPO will see immediate gains. This reflects the market’s maturation, as noted by an investment manager: “There’s no longer that assumption that every IPO is going to pop on day one.”
Despite these challenges, the Kingdom’s deal flow remains strong, with a blend of state-backed and private firms gearing up for upcoming listings. An investment banking official remarked on the expected activity, stating, “I think it will be a busy second half,” while alluding to his firm’s involvement in a significant transaction in Saudi Arabia.
Looking ahead, optimistic projections for a healthy IPO pipeline across the Gulf over the next 12-18 months are evident. This optimism is buoyed by easing geopolitical tensions, which have previously affected market confidence.
Even typically quieter markets are showing signs of activity, exemplified by Kuwait’s anticipation of a rare convenience-store IPO. With the country’s main index climbing around 19% this year, investors are heartened by the ruling administration’s initiatives to progress long-stalled economic reforms.
Overall, as regional markets continue to evolve, they reflect the broader economic and geopolitical narratives at play, presenting both challenges and opportunities for investors engaging with the Middle East.
