Weekly Market Wrap: Gulf Equities Reach New Highs as Headwinds Subside

Executive Summary

Gulf Cooperation Council equity markets have moved to new highs as three key headwinds that kept investors cautious over the past quarter – concerns over AI investment sustainability, geopolitical risks, and uncertainty over energy prices – have begun to ease. Strong corporate earnings, accelerating non-oil economic growth, and robust inflows into sectors aligned with Vision 2030 reform agendas have underpinned the rally. This week's market wrap examines the forces driving the breakout and what it means for the durability of the current bull market across the Gulf.

Easing Headwinds Clear the Way for Gulf Equities

For most of the summer, Gulf stock markets traded in a narrow range as investors weighed three persistent concerns: whether the region's massive spending on artificial intelligence would deliver returns, the risk of energy supply disruptions in the Strait of Hormuz, and the trajectory of US Federal Reserve policy. Recent developments have eased at least two of those concerns, allowing earnings and local economic fundamentals to take the lead. The result has been a breakout on several Gulf bourses, including the Saudi Tadawul and the Dubai Financial Market, which have moved to new highs.

Big Tech Earnings Show No Signs of Slowing AI Demand

A key debate among Gulf investors has been whether companies across the region can maintain the pace of investment in AI and digital infrastructure. Many of the region's largest technology and telecom groups have reported strong growth in cloud services and rising uptake of AI-enabled products. Management teams are increasingly confident in articulating not only the scale of their investments but also the expected returns. This has helped renew confidence in the AI investment cycle.

The market reaction, however, has been selective. Companies with clear monetization paths have been rewarded, while those with accelerating spending and less visibility have faced selloffs. This differentiation suggests the AI story is maturing rather than breaking, with investors becoming more selective but not abandoning the theme.

Strong Earnings Growth Extends Beyond Big Tech

Second-quarter earnings across the Gulf have come in ahead of expectations, with strong growth seen in banking, retail, real estate, and logistics. The strength is increasingly broad-based, signaling that the non-oil private sector is carrying the recovery. In Saudi Arabia, bank lending growth remains robust, supported by giga-projects and consumer activity. The UAE is seeing solid profitability across its financial and tourism sectors. Qatar, Kuwait, and Bahrain are also benefiting from higher energy prices and improved operating leverage.

This breadth is important. It means the rally is not dependent on a few mega-cap names, and it provides a healthier foundation for further gains. We believe market leadership can continue to widen in the second half of the year.

The Economy Proves Resilient Despite Oil Volatility

Geopolitical risks in the Middle East have not disappeared, but recent headlines have helped reduce fears of a major energy supply disruption. Hopes for de-escalation around the Strait of Hormuz have caused oil prices to retrace a portion of their earlier surge. While negotiations remain fluid, markets appear to be focusing more on underlying fundamentals than on headlines.

Even during the oil price spike, Gulf economies have demonstrated resilience. Non-oil GDP growth across the GCC is running at a healthy clip, and diversification efforts are yielding results. Manufacturing activity is expanding, and trade volumes are rising as the region strengthens its logistics and supply-chain infrastructure. This resilience reduces the drag from oil volatility on equity valuations.

The Labour Market Is Not a Source of Inflation

Labour market trends across the Gulf continue to evolve. In Saudi Arabia, the labour force participation rate has risen in recent years as more nationals enter the private sector, supported by Vision 2030. However, wage growth remains contained, ensuring that labour costs are not feeding into broader inflation. The region's flexible labour markets, with a large expatriate component, allow companies to adjust staffing in line with demand, limiting upward wage pressure. As a result, central banks in the GCC are likely to maintain accommodative monetary policies alongside the Federal Reserve, unless inflation expectations shift.

The Bottom Line

The move to new highs in Gulf equity markets is being confirmed by an exceptionally strong earnings season, broadening economic growth, and a lessening of headwinds. With the oil backdrop stabilizing and diversification gaining pace, the investment case for Gulf assets remains compelling. We expect the bull market to have further room to run, though volatility from global monetary policy and geopolitical events will require investors to maintain a long-term perspective.