Financials and real estate are expected to lead GCC market performance in Q4, analysts say.

“Dubai's commercial real estate continues to show strength, and regional banks offer compelling bottom-up risk-reward profiles, supported by solid fundamentals and capital buffers. On the other hand, the materials sector is likely to underperform due to weak operating momentum and subdued fundamentals. Sector rotation may favor defensive and reform-linked plays, particularly in financial services and real estate,” Philip Philippides, CEO of Mashreq Capital, told Khaleej Times.

GCC markets are relatively insulated from global trade tensions, particularly outside the energy sector.“While energy exports are vulnerable to direct tariffs, other major exports such as aluminum face baseline tariffs of 10 per cent and are not subject to higher reciprocal duties. Domestic capacity constraints in the US limit the impact of such tariffs, as imports remain necessary. GCC countries have so far avoided inclusion in lists for elevated trade barriers, and their diversified export profiles and strategic trade relationships provide a buffer against escalating global tensions,” Philippides said.

Anticipated Fed rate cuts and synchronised global monetary easing are expected to have a constructive impact on GCC financial markets.“With inflation across the Gulf averaging below 2 per cent and real GDP growth tracking 3–4 per cent, current US interest rates are excessively restrictive for the region. A pivot by the Fed would ease financial conditions, catalysing recovery in consumption, investment, and asset valuations,” Philippides said.

GCC central banks, tied to the US dollar, will mirror Fed moves, transmitting rate cuts directly into local money markets.“Lower rates will stimulate consumer spending, SME investment, real estate activity, and tourism. In fixed income, sovereign and quasi-sovereign credits offer attractive carry and mid-duration opportunities, with expected spread compression and renewed global inflows enhancing credit profiles and reducing refinancing risk,” Philippides said.

The expected range-bound oil prices are unlikely to cause major disruptions in GCC financial markets. In fixed income, bond spreads exhibit a nonlinear relationship with oil, remaining stable above $60 per barrel but widening below that level, especially for countries like Bahrain.“High-quality sovereigns such as Abu Dhabi and Qatar are well-insulated due to strong credit ratings and low debt-to-GDP ratios. Mena's average sovereign rating of A, compared to BBB for broader emerging markets, supports resilience and investor confidence,” Philippides said.

Despite tight spreads and strong YTD rally in 2025, low-single digit returns are achievable in 4Q25, primarily driven by carry, with additional potential upside from anticipated Fed rate cuts later this year and the next year. On the equity side, the oil price outlook is largely priced in. Saudi Arabia, the region's largest energy exporter, has underperformed for three years, reflecting subdued oil sentiment.“However, double-digit earnings growth, attractive valuations, and ongoing diversification reforms across tourism, finance, and logistics sectors provide structural support to the regional equity markets. Monetary easing will further enhance credit growth and equity performance,” Philippides said.

The divergence in performance across GCC markets is likely to persist, albeit with some moderation. Saudi Arabia has lagged since its valuation peak in Q2 2022, and while short-term softness may continue, medium-term downside appears limited given current investor positioning and valuations.“Oman has emerged as a standout performer, gaining 14.7 per cent post-June, driven by expectations of an EM benchmark upgrade and proactive government measures to attract investors. Kuwait also saw strong momentum in H1 2025, buoyed by reform optimism around government financing and mortgage legislation. The UAE remains supported by robust earnings and real estate strength. While some convergence may occur, Oman and Kuwait retain upside potential due to their reform-driven narratives,” Philippides said.

Mena credit continues to offer value, with current index yields at c.5.5 per cent providing a compelling carry proposition. The 5–10 year segment of sovereign and quasi-sovereign bonds from countries like Saudi Arabia, Turkey, Egypt, and Morocco presents strong total return potential, especially as US Treasury yields decline and credit stories improve.

“Defensive carry can be found in Tier 2 and AT1 bank debt, which benefits from lower volatility and regulatory support. GCC pipeline bonds also stand out, trading at higher yields than global peers with similar ratings, offering relative value for active allocators seeking yield and macro stability,” Philippides said.

GCC sukuk issuance is expected to remain robust in Q4, continuing the record pace set earlier in the year. Saudi Arabia and the UAE are leading the charge, funding infrastructure and diversification initiatives. Investor demand remains strong, with most new deals oversubscribed and spreads still tighter than their five-year average.“The market is well-positioned to absorb continued supply without significant pressure on valuations. Global sukuk issuance is projected to reach $190–200 billion in 2025, with hard currency sukuk accounting for $70–80 billion. The GCC dominates this segment, supported by resilient liquidity, improving credit fundamentals, and strong demand from regional bank treasuries and international investors,” Philippides said.

Investor appetite for sustainability-linked sukuk (SLS) and digital sukuk is poised to accelerate, driven by global ESG mandates, net-zero commitments, and the integration of sustainability into investment frameworks. The ESG sukuk market is expected to surpass $50 billion outstanding in 2025, with GCC issuers, particularly in Saudi Arabia and the UAE playing a leading role.“Recent debut SLS transactions from major UAE banks and the growing use of Nasdaq Dubai as a listing venue highlight this trend. Digital sukuk, though nascent, are gaining traction through blockchain-based issuance pilots aimed at enhancing transparency and access. Regulatory support and demand from Islamic and ESG-focused investors will likely drive further growth in both segments,” Philippides said.

A sustained and disorderly decline in oil prices could materially impact government revenues, leading to reduced spending and weaker sentiment around IPOs and project awards. While tender activity has already slowed in 2025 due to strong momentum in the prior year, the base case remains for stable oil prices.“Saudi Arabia's leadership has emphasized flexibility in fiscal policy and a continued focus on infrastructure, mega events, and gas output expansion. If oil prices fall sharply and remain low, IPO activity may be delayed or scaled back. However, the pipeline remains robust, with listings planned across AI, construction, metals, education, fintech, and more in Abu Dhabi, Dubai, and Riyadh, suggesting resilience in the face of moderate oil price volatility,” Philippides said.

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