UAE, Saudi Arabia remain investor hotspots amid global uncertainty

03/07/2025 03:55 AST

In a world increasingly defined by geopolitical uncertainty and economic fragmentation, the Gulf region - particularly the UAE and Saudi Arabia - is emerging as a compelling destination for global investors, BlackRock analysts said in Dubai on Wednesday.

"The Middle East is both a source of capital and a destination for long-term investment. Governments like Saudi Arabia's are channeling decades of oil wealth toward economic diversification. Domestic and global capital is increasingly targeting infrastructure, energy and innovation in the region. Yet geopolitical flare-ups and oil price volatility remain key risks," the world's largest manager said in its first Global Mid-Year Review on the region.

The UAE, with its diversified economy and stable governance, is drawing attention for more than just its oil wealth. Investors are increasingly attracted to its maturing capital markets, robust infrastructure, and sectoral breadth-from real estate and finance to tourism and technology. This diversification stands in contrast to some of its neighbors and is helping the UAE position itself as a regional financial hub.

The recent de-escalation in regional conflict has eased immediate risks - steadying oil prices and lifting local markets, with the Dubai benchmark equity index now at a 17-year high, as per LSEG data. "While headwinds remain, we believe that the tailwinds are strong enough to boost investor confidence in the region," Ben Powell, Chief APAC & Middle East Investment Strategist, BlackRock Investment Institute, said.

Saudi Arabia, while facing short-term market headwinds-such as the Tadawul index's underperformance-remains a focal point for long-term capital. The Kingdom's Vision 2030 agenda, which includes sweeping reforms and privatization efforts, is gradually shifting its economic narrative. IPO activity and the opening of new investment channels are part of a broader strategy to blend public and private capital in funding its transformation.

BlackRock's analysts emphasized that this shift from capital exporters to investment destinations is not just a trend-it's a structural evolution. The region is increasingly seen as a place where global capital can find both returns and relevance. This is particularly true in sectors like AI and clean energy, where the UAE is positioning itself at the intersection of innovation and sustainability. Private markets, they argue, will be essential in accessing these opportunities, especially in infrastructure and technology.

Despite regional tensions, such as the Israel-Iran conflict, markets have shown remarkable resilience. This stability, once taken for granted, is now a premium asset in a volatile world. "Stability is the new cool, and from being an exporter of capital, we are seeing more of a two-way flow. We expect this to continue," Powell said.

Sovereign wealth funds in the region are also being encouraged to rethink their global asset allocation strategies. The old playbook-heavily weighted toward US-centric assets-may no longer be sufficient. Instead, a more diversified, globally balanced approach is being advocated, one that includes greater exposure to private markets and regional opportunities.

Investor sentiment reflects this shift. There's growing demand for UAE-listed investment vehicles and FX-hedged products, as well as a broader interest in the region's evolving equity markets. While Saudi Arabia's short-term performance has raised questions, analysts caution against overreacting to near-term volatility. Instead, they point to structural reforms and long-term growth potential as the real story.

Globally, BlackRock believes that with macro anchors weakening, investors can no longer rely on broad asset class returns converging back toward long-term averages. "Longer term, with macro anchors lost, no one knows where the global economy is ultimately headed. That's why, for now, we invest in the here and now - and lean more on our tactical six- to 12- month horizon. It's also why we stay positive on risk taking and overweight US equities," the report said.

Khaleej Times