Will the Middle East’s transformation bolster its burgeoning stock markets?
Efforts to diversify the economies of the Middle East are reinforcing its stock market development, creating the necessary investment environment to hasten the move towards a future beyond oil.
Saudi Arabia’s Vision 2030 blueprint, launched in 2016, provides a roadmap to diversify its economy away from oil by developing several sectors, including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure and healthcare.
That shift calls for more than USD3.2 trillion in investment between 2021 and 2030. Some of that will come from the government and the nation’s mighty sovereign wealth fund, the Public Investment Fund, which has nearly USD1 trillion in assets. But a larger share will need to come from private investors.
There are similar visions across the other five member countries of the Gulf Cooperation Council. The United Arab Emirates (UAE) arguably led the way, with the Emirate of Abu Dhabi publishing its Economic Vision 2030 back in 2007.
Dubai, the UAE’s other financial powerhouse, has been diversifying in earnest since the 1970s because its oil reserves are much smaller than those of its neighbors. But Dubai nevertheless plans to diversify further by 2033 through a string of new strategic initiatives.
Qatar’s National Vision 2030 and Bahrain’s Economic Vision 2030 came in 2008, while Kuwait’s Vision looks out to 2035, and Oman’s further still, to 2040.
Opening up
Laying the groundwork to ramp up private sector investment, Saudi Arabia opened up its stock market to foreign investors for the first time in 2015 — becoming the last G20 country to do so.
The next turning point came in 2019, with Saudi Arabia’s inclusion in the MSCI Emerging Markets (EM) Index in May and the blockbuster initial public offering (IPO) in December of the world’s largest oil and gas company, Saudi Aramco — which, at more than USD29 billion, still stands as the biggest IPO of all time.
“That drove a lot of liquidity to the market,” said Ashar Saleem, Senior Vice President, Equity & Fixed Income at Kimco Invest. Market turnover on Saudi Arabia’s main market, Tadawul, surged from a daily average of SAR3.5 billion (USD933 million) in 2019 to SAR8.3 billion in 2020. The country now has the region’s highest total market capitalization, at USD2.7 trillion as of February 2025, of which Aramco makes up two-thirds.
The UAE, with exchanges in Abu Dhabi and Dubai, ranks second in the region, with a market cap of over USD1 trillion. Qatar has USD171 billion and Kuwait has USD149 billion.
These markets are all developing rapidly. The UAE and Qatar were included in the MSCI EM Index back in 2014 and Kuwait in 2020. In the past 10 years, the gap has narrowed between these countries’ representation in global equity indexes and their GDP (see Figure 1).
They accounted for a combined 6.5% of the MSCI EM Index as of mid-2024 — a big increase from just 1.5% in 2021. Given the strong momentum in IPOs in some countries in the region, and especially in Saudi Arabia and the UAE, this representation is likely to continue increasing.
The region’s capital markets have been strengthening their infrastructure and improving access, according to Ali Janoudi, Head of New Markets at Lombard Odier Group. “Greater market depth, enhanced regulatory frameworks, and increased liquidity are making regional assets more attractive to both local and international investors,” he said.
In recent years, for example, Saudi Arabia launched derivatives and single stock futures. Saleem noted that while “this improves price discovery and liquidity,” uptake has been somewhat limited because derivatives and futures are not considered Sharia-compliant.
Gateway to direct investment
The region’s stock markets are attracting foreign investors and giving them a taste for investing there, said Ayman Abouhend, Chief Investment Officer at Significa Ventures. “Countries are using their stock markets sort of like an introductory cocktail party for investors from around the world. Because they’re public markets, you can always see what your investment is worth and exit at any time,” he said.
Abouhend explained that “after people make money in a country’s stock market, they gain the confidence to move into other types of investments. They might then invest in infrastructure projects, where there’s less liquidity and more of a commitment required, but also potential for greater returns. So, stock markets can be a gateway to foreign direct investment.”
In addition to investments in infrastructure, diversifying the economies of the Middle East will involve deploying capital to targeted sectors and developing human capital across the region.
The region’s governments are also rolling out various pro-businesses measures to encourage entrepreneurs to set up shop, including tax concessions and subsidies, improved protection of investors’ rights, and residency schemes to attract talent from abroad. Other measures include requiring that companies establish an office or have their regional headquarters within a certain country in order to be eligible for venture funding from that government or to bid on government contracts.
Planning for life after oil
At current consumption rates, the world’s oil reserves could last around 50 years. But consumption could dip considerably as the international community seeks to ramp up its efforts to tackle greenhouse gas emissions and as clean energy becomes more competitive.
Tracking the progress of Gulf countries on their shift away from oil can be difficult because “even the non-oil economy is highly dependent on the oil revenue,” said Saleem. So, while official data suggests that Saudi Arabia has been reducing its reliance on oil across output, revenue and exports (see Figure 2), it’s also fair to say that the corresponding growth in non-oil activity would be largely impossible without support from the country’s mainstay industry.
“To give you an example, petrochemical revenue is considered non-oil revenue,” explained Saleem, “but you wouldn’t see that growth in petrochemicals if you didn't have the crude available cheaply.”
In a bid to diversify further, several countries in the Middle East are harnessing their abundant sunlight to invest heavily in solar energy, some of which they could potentially export in the form of low-carbon hydrogen.
Saudi Arabia appears the most aggressive of the region’s countries in its renewable energy investments, with a goal to source at least 50% of its own power needs from renewable energy by 2030 (see Figure 3).
What’s more, the country plans to produce domestically three-quarters of the renewable energy equipment it uses by that time. This could be feasible given that solar photovoltaic panels are made primarily of silica sand, and Saudi Arabia has some of the highest purity silica in the world.
The country is also making significant investments in electric vehicle (EV) manufacturing and infrastructure, with a target to produce half a million EVs a year and establish a country-wide network of fast chargers by 2030.
Mining and tech
Another avenue for Saudi Arabia and the broader region to capitalize on their natural resources is mining.
“It will probably be one of the biggest industries in the coming decade,” said Tamer Azer, a Partner at investment firm Shorooq. He pointed out that the vast geological formation known as the Arabian-Nubian Shield, spanning Egypt, Jordan, Ethiopia, Saudi Arabia and Sudan, presents a massive untapped trove of critical metals and minerals.
In Saudi Arabia alone, the government recently increased its estimate of untapped mineral potential to USD2.5 trillion following new discoveries of rare earth elements and revaluation of its gold, zinc, copper and phosphate deposits.
The region is also cultivating a growing range of technology sectors, with the burgeoning venture capital (VC) ecosystem expanding its focus beyond fintech, edtech and healthtech to more sophisticated areas like AI-driven drug discovery and fabless chip design.
Azer believes that different types of technology businesses will emerge across the region, depending on the characteristics of the markets in which they are based.
“In Egypt, subcontracting and digital services are growing unbelievably quickly because there’s a cost arbitrage: labor in Egypt is more cost-effective and multilingual, as well as abundant,” he said.
“In Saudi, you have a very strong local market with very healthy consumer spending, so you’re getting a lot of growth in companies that are solving local problems. In the process, they’re building very strong infrastructure locally that could, in theory, allow them to expand regionally in the future.”
“The UAE is where the most innovative companies are because it’s an attractive place for global talent,” said Azer. “There are a lot of companies that are building world-class products in the UAE, which provides the sophisticated market and regulatory environment to build, test and scale these products.”
Today’s startups, tomorrow’s liquidity
Historically, the biggest and best-known IPOs in the region have involved the sale of state assets, such as Saudi Aramco. But IPOs have become more diverse over the past few years.
In 2024, the region’s biggest listings included online food delivery platform Talabat in Dubai — which was also the year’s largest technology IPO globally — and Lulu Retail Holdings, which operates a string of hypermarkets in the region, on the Abu Dhabi Securities Exchange. The biggest Saudi IPO in 2024 was healthcare services provider Fakeeh Care Group.
Looking ahead, many of the startups funded by Middle East VC funds will exit through IPOs on one of these markets.
Such listings by the region’s entrepreneurs drive market liquidity in two ways, said Saleem. First, the money that was tied up in the private investment becomes liquid. And second, “startup investors who made a killing need somewhere to deploy that capital. VC investors would not be very interested in money market funds or real estate, given their risk appetite. They would naturally gravitate towards equity markets.”
Azer believes that while the region’s stock markets are travelling in the right direction, they are still not big or liquid enough “to be exciting” for retail and institutional investors and to prompt a big uptick in foreign inflows. “There’s not enough yet, but I believe we are heading towards the inflection point,” he said.
Although the Middle East bucked a global decline in IPOs in 2024 — with the region’s biggest markets setting new records — the number of deals was still well behind markets like Japan, South Korea and Hong Kong. Getting to that inflection point “will still take some time,” said Azer.
Discover more on Middle East investment trends:
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The evolution of the Middle East VC ecosystem
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