Dubai Tourism
$60bn invested since 2020
But ownership share remains low
‘Oil link’ reputation deters some
International investors have pumped more than $60 billion into Gulf stocks over the past five years but their share of ownership is still relatively low, putting into question the success of GCC states’ economic diversification policies.
Governments in the world’s largest oil-producing region have long sought to increase foreign direct investment into their economies and trading in their listed companies.
The admittance of the UAE and Qatar, and later Saudi Arabia and Kuwait, into the MSCI and FTSE emerging market indexes has brought inflows from passive funds that track these benchmarks, raising international ownership levels.
Cumulative net international flows into Gulf equities since February 2020 total $60.3 billion, according to a March report by consultancy Iridium Advisors.
A little under $34 billion was invested in Saudi stocks, about $20 billion in UAE equities and the remainder divided between Kuwait and Qatar.
“The big issue over the past few years is the extent to which the active managers remain underweight on the GCC in general and Saudi Arabia in particular,” says Tarek Fadlallah, CEO of Nomura Asset Management Middle East in Dubai.
“There’s a perception that Saudi Arabia is an oil-linked economy, so some investors only want to buy stocks when crude prices are high and not when oil prices are where they are today.”
Saudi Arabia is the largest Arab economy, but it still relies on oil for 70 percent of its exports by value and more than half its government revenue.
In May 2022, three months after Russia launched its full-scale invasion of Ukraine, oil prices almost touched $120 per barrel. They are now back down to where they were almost five years ago, below $70 per barrel.
In the UAE, international investors were net buyers of $2.5 billion of stocks in February alone, Iridium estimates.
In the 15 months to March 12 this year – the most recent period for which data is available – international ownership rose at five of Dubai’s 10 biggest listed stocks, AGBI research has found. A drop was recorded for four stocks while one – delivery company Talabat – only listed in December 2024.
International shareholdings in telecoms operator Du jumped 60 percent over this period to 1.6 percent. However, overseas investors reduced their stake in road toll operator Salik by nearly half to 11.4 percent.
In Abu Dhabi, petrochemicals producer Borouge has the highest international ownership among the largest listed companies at 37 percent.
Overall, international ownership share in Gulf stocks is low compared to the New York and Nasdaq exchanges in the US, where it is about one third. In Saudi Arabia, by contrast, the average is only 10 percent.
“It’s also a question of bandwidth; emerging market fund managers allocate more time and money to bigger markets like India and China than they do to the Gulf,” says Fadlallah, who works with the managers.
“Often, they buy the three or four largest companies in a particular market because they just need exposure to that market.”
One benefit of international ownership among minority shareholders is the impact on corporate disclosure practices, says Fadlallah.
Gulf disclosure levels compare favourably with other emerging markets although outside the major companies few have dedicated investor relations teams.
Initial public offerings by state-owned companies have also required these businesses to become more transparent.
“There’s an onus on them to report things that otherwise they wouldn’t report,” says Fadlallah.
Foreign investors also appear to be in the Gulf market for the longer term.
“Both domestic and international investors now want to see the transformation of these economies begin to be better reflected in companies’ revenues and profits,” says Fadlallah. “That may take a little while.”
