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The GCC equity markets have witnessed a recent slowdown in net foreign investor inflows with January numbers slipping to $939 million from December’s $1.04 billion. The drop is even more significant, nearly 41%, compared to November’s figures.
Findings of the ‘Foreign Flow Analysis’ study by Iridium Advisors, a Dubai-based management consulting firm, point towards a downward curve, but CEO Oliver Schutzmann called it a sign of foreign investors being “more selective in their allocations”.
“There are couple of points that have been driving this slowdown recently, but it’s not necessarily a sign of weakening interest, because institutional capital is still coming in. It seems that some of the allocations are a bit more selective,” Schutzmann told Zawya. “Foreign investors could just be reassessing valuations before they commit additional capital, so they are not exiting. They are just monitoring for better entry points.”
Beyond 2024
Several key events, including wars in Gaza, and Lebanon and the change in power in Syria, have impacted markets in the GCC, say experts.
The UAE, which was the top recipient of inflows in 2024, has seen its momentum slow, indicating a change in investor sentiment, Iridium data revealed. In January, the UAE slipped to third place, attracting inflows of over $115 million, behind Saudi Arabia, which led with $694 million, followed by Kuwait at $133 million.
Schutzmann indicated that following last year’s rally, which saw Dubai’s equity index as the largest gainer in the GCC, surging 27.1% on the back of a strong economic outlook, the UAE’s performance in January was not worrisome or indicative of a downward trend.
“If you compare to January 2024 numbers, you will see it’s up 19% year-on-year, which is the strongest jump in the region,” he said.
According to Schutzmann, the ongoing corporate earnings cycle and valuation dynamics will be key to how the quarter fares for the UAE.
On a macro level, he said foreign investor positioning in GCC equities is high right now. “It’s actually at the highest level that it has ever been, and it also suggests that there is continued interest in the region.”
He continued: “According to our data, the global emerging market funds are now at the peak of what they have ever allocated, particularly to Saudi and the UAE. These GEM funds have allocated around 56%, which means that half of these funds don’t have any exposure yet to the market and that’s obviously because UAE and Saudi Arabia were late comers to the emerging market universe compared to India, Brazil, and China, which already have an allocation of 98% or 99%.
“So, I think this is a clear indication that there is still quite a bit of room for further inflows, but investors may be approaching these new allocations with a little bit more scrutiny, especially in the UAE, where they have had a really good run.”
With fluctuating interest rates and a Trump 2.0 US Presidency wielding an influence on capital flows, Schutzmann said that it remains a wait and watch game, with no clear sign that recent changes have pushed investors out of the GCC.
“I think what people need to understand is that foreign institutional investors have quite a long investment horizon. These are not typically people who come in one day and then leave the next. So, while short-term flows could get influenced, this doesn't necessarily mean people will immediately exit the market the moment that you know rates go up or down,” he said.
(Writing by Bindu Rai, editing by Brinda Darasha)
