Expect a more subdued Dubai bourse in 2025

December 25, 2024, 6:06 AM

The Dubai bourse has levelled from its 10-year peak but experts expect it remain steady in 2025

Dubai bourse up 24.5% this year
Kuwait shows strong potential
Oil prices could slow growth

Following a stellar 2024, Dubai’s index is likely to join other Gulf bourses in experiencing a more subdued 2025.

Dubai’s growing population, record tourism and trade revenues and a near-doubling of residential property prices since January 2021 helped to propel the emirate’s bourse to a 10-year peak last week.

The benchmark has since retreated slightly but remains up 24.5 percent this year to December 23 and has nearly tripled from an early 2020 low. Experts seem confident the index can at least hold steady in 2025 even if the upward momentum stalls after such a strong rally.

“Dubai’s economy is built on real estate and hospitality, so when that virtuous cycle is in motion it tends to do very well, but the flip side is that it can unravel quickly,” says Tarek Fadlallah, CEO of Nomura Asset Management Middle East in Dubai.

He cited two potential factors that could weigh on Dubai real estate: the return of Russians to their home country should the Ukrainian conflict end and prolonged economic difficulties in China and Europe which are two major source markets for the emirate’s tourism industry.

“I don’t foresee these sectors being hit especially hard, but the froth of this year might be taken out. I expect it’ll be a flattish 2025, which will be enough to hold onto the market gains of this year and last,” says Fadlallah.

Other Gulf stock indexes have been markedly more lacklustre in 2024. Neighbouring Abu Dhabi is down 1.8 percent, while Saudi Arabia, Oman and the FTSE Qatar Index have each declined by less than 0.5 percent. Kuwait’s premier market benchmark, which encompasses the country’s heavyweight stocks, is up 4.4 percent this year to December 23.

Oil prices

“Gulf stock markets may tread water next year,” says Fadlallah. “There’s the positive dynamic of economic transformation, but gains are likely to be capped by oil price outlook.”

Brent crude is down 6.7 percent this year to December 23, sliding from a 2024 peak of above $91 per barrel in April to about $72, as a result of demand worries and renewed dollar strength.

“If oil prices remain in the low seventies and perhaps even in the sixties next year, that isn’t a conducive environment for Gulf governments to be spending the quantum of money that will propel regional stock markets higher,” says Fadlallah.

Saudi Arabia’s index has been near-flat in 2024 because of the weak performance of the banking and energy sectors, which together represent about two-thirds of the bourse’s main index. The energy sector includes Saudi Aramco and the country’s various petrochemical producers.

“Next year could be more of the same where the index treads water while many mid- and small-cap companies in the non-oil economy do extremely well,” says Akber Khan, acting chief executive officer of Al Rayan Investment in Doha.

“There’s room to make a lot of money in Saudi stocks, but not if you buy an index exchange-traded fund. Saudi’s market dynamics are a classic example as to why you shouldn’t buy index ETFs in emerging markets.”

Companies in the infrastructure, logistics and education sectors consistently report 15-30 percent earnings growth year on year, says Khan, highlighting how some industrial companies have such bloated order books that they are refusing new business.

“Investors with a top-down, media headline perspective that Saudi Arabia’s growth story is running out of steam because of lower oil prices are missing out,” says Khan.

“Even if overall government spending were to soften, many businesses have such backlogs of work that their earnings are relatively well protected for several years.”

The breadth and depth of Saudi Arabia’s stock market provides considerable opportunities for investors to profit, says Fadlallah.

“There are now ecommerce, tourism and hospitality companies, for example, which weren’t listed a decade ago,” he says. “Sectors with a role to play in Vision 2030 are incentivised to raise money from the capital markets to facilitate their growth.”

In 2023, foreign institutions from outside the Gulf were frenzied buyers of Saudi Arabian stocks as they hoped to profit from the kingdom’s economic diversification programme, but such buying ebbed this year due to worries that Israel’s war in Gaza and its subsequent invasions and bombings of Lebanon and Syria would spread further.

“Many foreign investors were trading based on perceived fear over headlines, not actual earnings,” says Khan.

As the second-best performing Gulf stock market, Kuwait is attracting increasing interest from regional and international emerging market investors.

“There’s much excitement in Kuwait, with an enormous amount of spending catch-up to be done,” says Khan.

“With the decision-making now more streamlined, we expect further project announcements and, more importantly, implementation on the ground which is badly needed across several sectors including real estate, transport, energy, infrastructure and logistics.”

In terms of where equity investors should focus, Khan adds: “We believe the biggest opportunities next year remain in Saudi Arabia, Kuwait and the UAE but opportunities exist in every Gulf country.”