Dollar slump impacts foreign Gulf stock investors

Markets struggling with uncertainty

Gulf stocks becoming cheaper

The dollar’s descent to multi-year lows against other major currencies presents a dilemma for foreign investors in Gulf stocks.

Regional currencies are pegged to the US currency, aside from the Kuwaiti dinar which tracks a basket of currencies that is heavily dollar weighted. So, a lower dollar makes buying Gulf stocks cheaper for investors from Europe and Asia.

But those investors who bought Gulf stocks prior to the dollar drop are likely to be nursing sizeable losses in euro, pound or yen terms, for example – and that excludes any share price movement.

The dollar index, which measures the greenback against a basket of other major currencies, hit a three-year low this month and is down 9.4 percent since January 13.

Gulf bourses, like those worldwide, have been volatile in response to US president Donald Trump’s combative and unpredictable tariff and trade strategy.

“Uncertainty is the enemy of rising markets,” says Akber Khan, acting CEO of Al Rayan Investment in Doha.

“Markets only go in one direction when uncertainty increases – and it’s not upwards. Investors typically react to uncertainty and shock by selling first and asking questions later.”

Khan says the true impact of some of the US policy changes will only be known in the fullness of time although even that assumes the changes are static. 

“Policies have changed, sometimes numerous times, in a week and sometimes even within the day. Markets really struggle like this –  volatility spikes and some investors do not want to participate,” he says.

So far, the dollar slump has led to a mixed response from foreign investors in Dubai-listed stocks. From the Dubai index’s 17-year peak on February 19 to Friday’s close, foreign investors have increased their holdings in 22 companies and reduced their stakes in 24, according to an AGBI analysis of bourse data.

Telecom operator Du, Dubai Electricity and Water (Dewa) and road toll operator Salik – defensive stocks because of their largely predictable revenues – have all attracted net foreign inflows. Those showing the biggest outflows tend to be small-cap companies which attract speculative traders, although foreign investors have also been net sellers in freezone operator Tecom and real estate developer Union Properties.

Blue-chip companies such as Emaar Properties, subsidiary Emaar Development, and Dubai’s top bank Emirates NBD are little changed in terms of foreign ownership.

“There are so many macroeconomic sources of volatility affecting asset classes, it doesn’t make sense to attribute market moves to one specific variable, such as a declining dollar,” says Khan.

Foreign investor activity on other Gulf bourses has been mixed. Overseas investors were net buyers of AED8.5 billion ($2.3 billion) of Abu Dhabi stocks in the first quarter of 2025 and net buyers KWD83.9 million ($274 million) of Kuwaiti equities in March. 

But they were net sellers of SAR1.53 billion ($408 million) of Saudi Arabian shares the same month. In all, foreigners own 10.3 percent of Saudi companies’ free-float shares, Riyadh’s Al Jazira Capital estimates.

“Some stocks are pricing in a very sharp drop in oil prices which would cause Saudi Arabia to slash infrastructure spending,” says Khan. “However, in some of these cases, the companies in question have multi-year order backlogs and are in the middle of projects. A complete cancellation of projects is very unlikely.”

For global or emerging market investors, it is often easier to take a broad brush and reduce holdings across hydrocarbon exporting countries to reallocate to hydrocarbon-importing countries, Khan says.

Expectations that the dollar will probably fall further will deter emerging market funds with a non-dollar base reporting currency to invest in Gulf stocks. That will also push those already invested in regional stocks to reduce their positions in this new environment, says Rohit Chawdhry, chief investment officer at Dubai’s Cross Alpha.

“Non-dollar-pegged emerging markets will attract increased inflows – such as Brazil, India and South Korea given that their currencies may appreciate further and their stock markets have already corrected since last September,” adds Chawdhry.

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