Post by : Naveen Mittal

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Middle East Equities Rise Amid Bargain Hunting; Saudi Nears Two-Year Low

Middle East financial markets showed signs of recovery as investors capitalized on lower valuations and sought opportunities amid global uncertainties. Middle East equities rose on Monday, buoyed by bargain hunting and renewed optimism surrounding central bank policies. Despite lingering concerns over inflation and global supply disruptions, markets were lifted by expectations of rate cuts by the U.S. Federal Reserve, while key Gulf economies showed resilience.

In this comprehensive analysis, we explore the driving forces behind the recent uptick in equities, regional market dynamics, key stocks, and the influence of global factors, such as crude oil prices and central bank policy decisions. This article provides an in-depth look at how investors are navigating challenges while positioning themselves for future gains.

Bargain Hunting Sparks Renewed Investor Interest

The surge in Middle East equities came as investors sought undervalued assets amid global market volatility. After recent sell-offs, select companies were trading near historically low levels, prompting a wave of bargain hunting. Analysts believe this renewed appetite reflects both short-term opportunities and strategic positioning ahead of expected monetary policy shifts.

Saudi Arabia’s benchmark index hovered near a two-year low, attracting investors willing to take calculated risks. Meanwhile, Qatar’s index posted modest gains as financial stocks led the charge.

Key Takeaways:

• Bargain hunting drove investor activity as markets showed signs of bottoming out.

• Lower valuations created opportunities, particularly in sectors hit hardest by inflation and supply concerns.

• Regional markets were influenced by external factors like crude oil prices and U.S. monetary policy.

Saudi Arabia’s Market: Struggles and Opportunities

Saudi Arabia’s stock market, the largest in the region, struggled with selling pressure as global uncertainties weighed on investor sentiment. Heavyweight companies, including Al Rajhi Bank (1120.SE) and ACWA Power (2082.SE), posted declines of 0.4% and 2.7% respectively.

Al Rajhi Bank:

• The world's largest sharia-compliant lender, Al Rajhi’s shares fell amid concerns about slower loan growth and cautious investor sentiment.

• Analysts see long-term potential given the bank’s dominant position and exposure to rising infrastructure spending.

ACWA Power:

• The renewable energy giant faced a sharp pullback, though its long-term prospects remain intact as governments invest in sustainable energy projects.

Despite these declines, Saudi Aramco (2222.SE) offered some stability, closing 0.1% higher after rebounding from a five-year low. The energy giant’s resilience underscores the kingdom’s central role in global energy markets.

Crude Oil: A Mixed Bag for Gulf Economies

Crude oil remains a key driver for the Middle East equities landscape. On Monday, oil prices inched higher following a Ukrainian drone attack that disrupted Russian crude exports through the Primorsk port. However, gains were capped due to concerns about slowing demand.

Key Oil Market Dynamics:

• Supply disruptions created short-term upward pressure on prices.

• Soft U.S. jobs data and inflation fears dampened bullish sentiment.

• The energy outlook remains volatile, influencing investor appetite in Gulf markets.

With most Gulf currencies pegged to the U.S. dollar, fluctuations in crude oil prices directly affect national revenue streams, government spending, and economic forecasts.

Qatar’s Financial Sector Leads Gains

Qatar’s benchmark index rose by 0.4%, driven by gains in financial stocks, with Qatar Islamic Bank (QISB.QA) climbing over 1%. Renewed investor confidence was bolstered by positive regional liquidity trends and expectations that lower global interest rates will support financing activity.

The financial sector, long seen as a stable pillar of the economy, is expected to benefit from improved lending conditions and diversified investments beyond oil and gas.

The Federal Reserve’s Role: A Key Market Catalyst

Investors across the Gulf region closely monitor Federal Reserve policy due to its influence on regional monetary decisions. The Fed is expected to cut rates by 25 basis points at its upcoming meeting, with additional cuts possible in October and December.

Why It Matters:

• Gulf currencies are pegged to the U.S. dollar, so changes in U.S. rates impact domestic financing costs.

• Lower rates could spur investment and ease borrowing conditions.

• Fed guidance may determine the scale and speed of investor rotations in global markets.

Traders are now pricing in 125 basis points of rate cuts by 2026, reflecting expectations that monetary policy will remain accommodative. However, Fed Chair Jerome Powell’s messaging on the pace and depth of cuts will be closely scrutinized.

Regional Markets: Egypt and Beyond

Outside the Gulf, Egypt’s EGX30 advanced by 0.5%, building on recent gains supported by sector-wide strength. Orascom Construction’s primary listing in Abu Dhabi, which jumped 4.7%, further reinforced regional investor enthusiasm.

Key market themes include:

• Increased cross-listing activity aimed at broadening investment opportunities.

• Strategic infrastructure projects fueling construction, energy, and tech sectors.

• A growing appetite for diversification beyond traditional oil investments.

Risks to the Recovery

While the outlook for Middle East equities is cautiously optimistic, several risks remain:

1. Inflation Concerns – Rising costs may slow economic growth and hurt consumer spending.

2. Global Geopolitical Tensions – Supply disruptions and sanctions could further pressure oil markets.

3. Currency Peg Vulnerabilities – Gulf economies face exposure to U.S. rate policy shifts.

4. Market Volatility – Options markets are pricing in significant swings, signaling investor nervousness.

Looking Ahead: Strategies for Investors

For those investing in Middle East equities, several strategies can help balance opportunity with risk:

1. Focus on quality assets – Large-cap companies with diversified operations are better positioned to weather downturns.

2. Monitor central bank signals – Stay attuned to Fed and ECB communications for cues on rate changes.

3. Diversify across sectors – Real estate, finance, and sustainable energy sectors offer varied exposure.

4. Watch commodity trends – Oil and gas markets remain crucial to understanding broader regional performance.

Conclusion

The rise in Middle East equities reflects both a search for bargains and a strategic shift toward sectors likely to benefit from easing monetary policy and energy market volatility. Saudi Arabia’s market, though near a two-year low, offers long-term opportunities, while Qatar’s financial sector is regaining momentum.

As central banks signal rate cuts and global uncertainties persist, investors are balancing risk with opportunity, leveraging regional strengths while navigating external pressures. The coming weeks will be pivotal as key policy decisions, crude supply dynamics, and broader market trends shape the next chapter for Middle East equities.

With informed strategies and careful monitoring of macroeconomic trends, investors can position themselves to capitalize on evolving market opportunities while safeguarding against unforeseen risks.

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