UAE investment outlook: Sectors, risks, and opportunities to look out for

22/12/2025 04:32 AST

As we head into 2026, the macro picture in the UAE remains supportive, as most sectors are expected to perform strongly, analysts say. The country has steadily shifted from an oil-dependent model into a diversified global hub, with non-oil industries now accounting for a huge portion of GDP, said Farhan Badami, Business Development Manager at eToro. The Central Bank of the UAE expects real GDP growth of around 5.3 per cent in 2026, up from roughly 4.9 per cent in 2025, driven by both oil and non-oil activity. Inflation is low and contained. Headline inflation slowed to around 0.7 per cent in mid-2025 and the central bank expects inflation of about 1.8 per cent in 2026 and which gives policymakers room to support growth. With the dirham pegged to the US Dollar, the central bank largely tracks the US Federal Reserve, with rate cuts in the region tracking the Fed in the back end of 2025. Those cuts may slow in early 2026, but markets still expect two further cuts from the Fed which could see the UAE follow suit. "Credit growth has been robust, with loans increasing by double digits year-over-year in 2025, and banks remain well-capitalised with low non-performing loan ratios. Tourism, aviation and logistics continue to be key growth engines, particularly in Dubai, where transport and storage are among the largest and fastest-growing sectors. The residential real estate market has also shown strong momentum, underpinned by population inflows and policy support," Badami said. Sectors to watch in 2026 Banks and financials: Banks remain a backbone of both ADX and DFM. Abu Dhabi Islamic Bank, Abu Dhabi Commercial Bank and other large institutions have seen healthy earnings growth, supported by rising credit, strong capital buffers and a still-healthy interest margin. As rates edge down in 2026, margins may soften, but the drag is likely to be offset by higher lending volumes, fee income and continued safe haven inflows to the UAE. For investors, banks should continue to offer a mix of income and growth, although total returns may moderate from the very strong gains of 2025. Real estate and property-linked stocks: Dubai's real estate cycle remains one of the biggest stories for local investors. Developers and property-linked names such as Emaar, Aldar and Union Properties continue to benefit from strong transaction volumes, population growth and ongoing interest from international buyers. "With mortgage costs likely to ease gradually as rates come down, 2026 should remain supportive for the wider ecosystem, although valuations mean that nothing short of perfect execution will be required," Badami said. Energy and commodities: Energy and energy-linked names remain important for Abu Dhabi. The outlook for 2026 will hinge on oil prices, Opec+ policy and global demand. Late in 2025, oil prices softened, which weighed on the ADX, but demand is expected to improve and the 2026 surplus to narrow, while OPEC retains a constructive demand view. AI, tech and digital infrastructure: The UAE is positioning itself at the centre of the huge technology revolution of AI. Presight AI, for example, has been one of ADX's standout technology names, reflecting Abu Dhabi's push into data analytics, artificial intelligence and advanced digital infrastructure. "A national innovation strategy is driving major spending on AI, cloud, cybersecurity and smart city infrastructure, particularly in Abu Dhabi, where generative AI projects are being deployed across healthcare, finance and media. This is likely to keep capital flowing into this space, giving investors a growth theme that is distinctly local but tied to a global trend," Badami said. IPO pipeline and capital markets: Another important theme for 2026 is the ongoing IPO pipeline. Both ADX and DFM have benefited from a steady flow of listings in recent years, including government-related entities and family businesses. More IPOs in sectors such as real estate, logistics, utilities and tech should deepen the market and broaden the opportunity set for investors. The risks investors need to watch The UAE story is promising, but not without risks. "A sustained drop in oil prices would weigh on fiscal revenues, sentiment and parts of the equity market, even with growing non-oil diversification. That non-oil diversification also comes with execution risk given the large-scale investment required, which is also dependent on sustained progress in innovation," Badami said. Global growth remains uncertain, particularly in Europe and China, and a sharper slowdown could dampen trade, tourism and corporate earnings. "Valuations in some areas of the market, particularly in real estate and tech names, have moved higher after strong runs, which means earnings will need to keep delivering in 2026," Badami said. Reasons for optimism in 2026 Despite those risks, the overall picture for the UAE in 2026 remains positive. Growth is forecast to be solid, inflation is low and stable, and the policy backdrop is supportive. The banking system is well capitalised, capital markets are deepening, and the country continues to attract both foreign investment and skilled labour. "The UAE's economy is very well-diversified with over 75 per cent of GDP stemming from non-oil sectors. However, in the short run, the developments in oil markets could influence short-term volatility. U.S. data about the labor market, retail sales, and inflation could also influence near-term sentiment in the UAE as it influences the Fed's future interest rate decisions," said Vijay Valecha, Chief Investment Officer, Century Financial. For equity investors, earnings growth, particularly in banks, real estate and selected energy and tech names, should provide a tailwind, even if returns are more measured than in previous boom years. The UAE's reputation as a safe and stable market, the lift in foreign investor interest and its long-term push into diversification and innovation all help to strengthen the investment case for 2026. With capital markets continuing to mature and policy support remaining steady, the region stands out as an attractive destination for investors.

Khaleej Times