By M.R. Raghu, CEO of Marmore MENA Intelligence

All GCC markets ended May on a positive note, with the exception of Saudi Arabia. The Saudi Tadawul Index recorded a sharp decline of 5.8% for the month, weighed down by weak earnings from select blue-chip companies and continued pressure from declining oil prices, despite broadly positive global sentiment driven by developments on the tariff front. In contrast, the Dubai market maintained its upward trajectory, posting a monthly gain of 3.3%, supported by continued strength in the real estate sector.

GCC should command a premium

Global investors remain underweight on the GCC, which is rather surprising. The GCC represents approximately 8% of the MSCI Emerging Markets (EM) Index. However, active EM managers are underweight relative to this figure and have yet to fully appreciate a bloc that arguably deserves an overweight position.

The GCC offers an intriguing mix of markets led by Saudi Arabia and the UAE. Other countries, such as Kuwait, Qatar, Oman and Bahrain, also play significant roles. Although the GCC is yet to evolve into a bloc akin to the European Union, it presents a compelling oil play without the typical volatility associated with oil and gas markets. The global economy still relies heavily on conventional energy, and industries built near the source are often more secure – something the GCC offers in abundance. While energy security, independence, and transition remain widely debated themes, reliance on oil and gas is likely to persist for at least the next decade or two.

Though GCC economies have historically depended on oil, they have made concerted efforts to diversify – albeit with mixed success. For instance, non-oil industries account for over 50% of the non-oil GDP in Saudi Arabia, while the UAE has successfully positioned itself as a global trade hub. The GCC also boasts some of the lowest debt-to-GDP ratios globally, resulting in high credit ratings. A predominantly young population (with the majority under 35) continues to fuel a consumption boom. Numerous reforms are underway, including enhancements in ease of doing business (Saudi Arabia), capital market development (Saudi Arabia and Kuwait), and fiscal consolidation (Oman).

While global economic influence is gradually shifting towards China, India, and Saudi Arabia, portfolio allocations by EM managers have yet to reflect this shift – particularly in the case of Saudi Arabia. GCC economies are grounded in real assets, affording them long-term resilience. This is also evident in market performance, with the MSCI GCC index delivering a compound annual growth rate (CAGR) of 5.5% over the past decade, compared to 4.3% for the MSCI EM index.

So, what is holding back foreign investors?

The GCC is widely recognised as a hotspot for sovereign wealth funds (SWFs), and is often seen more as a provider of capital than a seeker of it. SWFs such as the Abu Dhabi Investment Authority (ADIA), Public Investment Fund (PIF), and Kuwait Investment Authority rank among the world’s top ten, reinforcing this perception. Former US President Donald Trump’s visit to the region underscored this belief to a considerable extent.

Historically, these SWFs have invested globally to diversify risk. However, PIF and ADIA are now committing significant resources to domestic projects, backed by ambitious national visions. The GCC is keen to attract foreign capital, not only to support these diversification goals, but also to invest in talent and technology. A growing youth population must be provided with meaningful employment opportunities, aligning well with the need for inward investment.

A key challenge for EM managers may lie in the narrow sectoral representation in regional stock markets, which are dominated by banking and petrochemicals. Prominent industries such as aviation (e.g., Emirates) or logistics (e.g., Dubai) have minimal stock market presence. Likewise, sectors such as information technology, healthcare, and defence (Saudi Arabia ranks among the top ten global military spenders) are also under-represented.

Although many GCC nations have made progress in reducing oil dependence, others continue to struggle. Oil revenue remains a significant portion of government budgets, constraining capital expenditure commitments. Additionally, the region’s welfare-based economic model—where numerous goods and services are heavily subsidized – can lead to inefficiencies. While the region enjoys one of the world’s lowest electricity generation costs, subsidies have encouraged excessive consumption.

GCC governments provide subsidised electricity, water, and fuel, along with public sector employment, housing, and other amenities for citizens. This model of wealth distribution aligns with the rentier economy framework. However, economies such as the UAE have been notably successful in aligning service pricing with market rates. Given the ongoing reforms, it is likely only a matter of time before these imbalances are corrected.

EM managers would do well to take a broader, long-term view and consider overweighting the region. The advantages far outweigh the risks, and we believe the GCC will soon command a premium in an increasingly unpredictable world marked by policy uncertainty and rising global risks.