The representation of shares from Gulf stock exchanges in the benchmark emerging-market equity index is set to rise by almost half because of the region’s “profound transformation,” Franklin Templeton said.
Stocks from Gulf Cooperation Council nations are “meaningfully under-owned” by investors, and account for around 7% of MSCI Inc.’s developing country index, said Salah Shamma, Franklin Templeton’s Dubai-based head of equity investment for the Middle East and North Africa. “A steady stream of secondary listings and new IPOs” should push that weighting to 10% over the next five years, he said in an interview.
Franklin’s call stems from expectations that growth in the region will get a boost from Saudi Arabia’s ambitious development projects, Qatar’s gas capacity expansion push and Kuwait’s economic reforms. Saudi Arabia and the United Arab Emirates are Shamma’s preferred markets in the region, given strong local consumption that creates investment opportunities across non-oil sectors.
“As the opportunity set grows, we expect foreign investor flows to increasingly reflect the region’s weight and potential, especially considering that foreign inflows have already doubled to $60 billion in just the past two years,” he said.
An MSCI index based on stocks from Gulf Cooperation Council countries has climbed 68% in the past five years, more than twice as much as the broader EM gauge.
“There may be periods of pressure,” Shamma said, but “the structural growth story is still very much intact” in the region. “There aren’t many places in the emerging-market universe with a narrative this strong.”
Indeed, there are challenges to the upbeat assessment for the Saudi market. Foreign direct investment inflows into the kingdom fell for a third year in 2024. Lower oil prices could prompt a reprioritization of some projects under the Saudi Kingdom’s development agenda, potentially leading to some delays, according to Shamma.
“That said, we expect the broader Vision 2030 investment program remains on track.”
