2026 MENA outlook: Performance and recap

TASI and MENA outlook

Expectations for Tadawul All-Share Index (TASI) and MENA markets remain positive for the year ahead, with anticipated returns supported by a favourable earnings outlook. Bloomberg-compiled estimates project low double-digit earnings growth while market valuations have returned to historical mid-cycle averages. Given the recent de-rating in valuation multiples, we expect earnings growth to be the primary driver of TASI’s recovery over the coming 12 months. We expect this to be supported by resilient non-oil activity, ongoing government investment, and a recovery in select cyclical sectors. Liquidity events, such as the potential removal of foreign ownership limits (FOL), positive geopolitical headlines, and favourable oil price movements, could support further market returns and multiple expansion.

Saudi Arabia is projected to see 12% earnings-per-share (EPS) growth in 2026, led by materials (especially petrochemicals), utilities, healthcare, and consumer discretionary sectors. In a more conservative scenario, should challenges persist in petrochemicals and utilities, growth could moderate to the mid- to high-single digits, still sufficient to underpin market returns given our current valuations.¹

The UAE is forecast to achieve around 9% EPS growth in 2026, powered chiefly by the real estate sector (with EMAAR expected to deliver 20% EPS growth), alongside steady contributions from healthcare, consumer, and industrial sectors.¹

Kuwait should see 5% EPS growth in 2026, driven by the banking sector, where strong project awards should support overall system lending growth. Kuwait’s outlook has improved substantially over the past 2 years, as greater political stability and renewed policy momentum, have underpinned a return of confidence in the local economy, though structural challenges persist.¹

Egypt is also turning more investable: 2025 saw a meaningful rebound in sentiment and liquidity as FX conditions stabilised and external balances improved. Looking ahead, continued disinflation and an expected Central Bank of Egypt (CBE) easing cycle (c.600–700 basis points of expected cuts) should support a recovery in domestic demand and earnings (with consensus pointing to low double-digit growth over the next two years). While valuations remain attractive versus history, we favour selective, higher-quality, liquid names.¹

Despite the negativity that is already being priced in by the market, geopolitical risks remain, including rising tension between Saudi Arabia and the UAE, contagion risks around the protests in Iran, and further downside to oil prices.

2025 performance recap

Saudi Arabia’s underperformance in 2025 was driven less by weakening fundamentals and more by a recalibration of risk premia that triggered position reductions across the investor base. As oil prices softened and geopolitical uncertainty increased, elevated starting valuations provided a natural exit point for retail investors, prompting a rotation into U.S. equities and higher-yielding local asset classes. Institutional investors remained largely sidelined as well, evidenced by elevated cash balances across local funds, which further reduced market liquidity and amplified the downside. The result was a ~13% decline in the TASI despite roughly 5% EPS growth, translating into an estimated ~17% contraction in one-year forward price-to-earnings (1YF P/E) multiples. At ~16.7x forward earnings, the market now trades at a discount to its 10-year historical average.

Crucially, this valuation reset stands in contrast to the underlying macro trajectory. Non-oil GDP growth remains resilient, supported by favourable demographics, rising labour participation, and sustained capital formation. While lower oil prices have prompted a more selective approach to spending, the government continues to act countercyclically, prioritising economically productive, strategically important projects while deferring lower-impact or aspirational ones. We see this as an evolution in capital discipline rather than a retreat from the reform agenda.

Looking ahead, we believe the balance of risks is shifting more constructively. Earnings growth expectations remain intact, and the bulk of the valuation compression now appears behind us. In this context, the anticipated removal of foreign ownership limits (FOL) in 2026 represents a potential structural inflection point. A full relaxation from the current 49% cap to 100% would increase Saudi Arabia’s weight in the MSCI EM Standard Index by approximately 73 bps, implying around USD 10.4 bn of passive inflows across MSCI and FTSE trackers under a full implementation scenario. Beyond the mechanical flow impact, such a move would meaningfully broaden the investor base and lessen the market’s reliance on domestic liquidity.

A similar dynamic is unfolding across the broader GCC. Governments enter this period with low debt-to-GDP ratios and ample fiscal space, enabling them to spend countercyclically and maintain momentum on diversification initiatives even in a softer oil environment. In our view, the recent regional selloff reflects elevated uncertainty rather than a deterioration in fundamentals. This has created an attractive entry point into high-quality franchises positioned to benefit from reform progress, capital deepening, and structurally expanding non-oil economies.

2026 key themes

Looking ahead to 2026, we expect opportunities to be anchored in resilient non-oil GDP and earnings growth, favouring domestic-demand beneficiaries such as Saudi banks, select consumer/retail and healthcare names. A stable-to-easier rate backdrop should support funding conditions. Nevertheless, dispersion is likely to increase, reinforcing a preference for balance-sheet strength, earnings visibility and valuation discipline, while remaining selective in more volatile cyclicals such as materials and utilities. Tourism, population inflows and FDI should continue to underpin real assets and services, supporting UAE real estate and select Saudi names exposed to travel, entertainment and urban development.

At a thematic level, the MENA investment landscape is increasingly shaped by country-specific fundamentals rather than a uniform oil-driven narrative. Over the medium term, we expect the opportunity set to broaden materially as capital-market deepening and reform momentum drive a larger and more diversified pipeline of new listings, particularly in internet-enabled, consumer-facing and technology-adjacent sectors. We believe this could structurally enhance the region’s return-on-equity (ROE) and long-term earnings growth profile over the next five years, while improving market breadth and investability. Non-oil growth, tourism, FDI inflows, regional geopolitics and potential Saudi foreign ownership limit relaxation acting as key differentiators. Structural reform, capital investment and improving earnings quality should continue to set the GCC apart from the broader emerging market universe, particularly in a late-cycle global environment characterised by elevated uncertainty.

Top convictions and opportunities

The MENA region, and particularly the GCC, stands out globally, underpinned by proactive government reforms, broad-based diversification efforts, robust capital spending programs, and strong public balance sheets. Within the region, sector preferences vary by country, but the overarching themes are those of domestically driven growth, including strong population and tourism trends and beneficiaries of government spending and reform. 

We favour leading franchises with strong economic moats, sustainable earnings power, high cashflow visibility and solid balance sheets, trading at a discount to intrinsic worth. Across the region, our highest-conviction ideas tend to sit where earnings durability, liquidity, and structural tailwinds intersect.

Saudi Arabia

In Saudi Arabia, our sector positioning is guided by a preference for areas where earnings visibility is highest and where balance sheets are well positioned to navigate periods of volatility. That said, we are most excited about Financials, Healthcare, and IT sectors which are expected to deliver sustainable earnings growth. We recognize that some cyclical sectors (e.g., materials and utilities) may screen with higher 2026E EPS growth, but we view that growth as less durable and more volatile - exposed to commodity price swings, project timing and base effects - leaving a more asymmetric downside than our core convictions.

Financials screen positively on our Saudi equity framework, but increasingly as stock-specific opportunities. Banks provide direct leverage to domestic economic activity, credit intermediation, and capital market development, and are likely to be early beneficiaries of any improvement in investor sentiment or foreign inflows given their scale, liquidity, and index weight. While the sector earnings outlook remains broadly resilient, we are seeing clear divergence in the ability of individual banks to defend returns through the easing cycle, which underpins our positioning. Al Rajhi and Saudi National Bank are structurally better positioned to absorb lower interest rates and incremental capital tightening, supported by their funding franchises, balance-sheet efficiency, and capacity to grow higher-quality non-funded income².

Healthcare is another core conviction as it combines defensiveness with structural growth, while being less exposed to oil-price and funding-cadence swings than more cyclical sectors. Demand is supported by demographics, rising insurance penetration, and capacity additions, while the reform and privatization agenda continues to broaden the investable universe. In the year ahead we forecast the Saudi sector delivering a double-digit earnings growth.

In Saudi Arabia we favour Mouwasat and AlMoosa with high growth profiles, underpinned by ambitious expansion plans in underpenetrated areas.

We are also overweight IT as a core beneficiary of the region’s multi-year push to digitize government services and scale AI adoption. We expect this to translate into sticky, high-visibility contract revenue and structural margin support. In Saudi Arabia, we favour Solutions by STC and ELM for their entrenched positions in government and enterprise digital transformation programs. In the UAE, Presight offers leveraged exposure to AI-led analytics and sovereign-led digital initiatives, with a strong pipeline tied to public-sector demand.

Market derating in Saudi Arabia in 2025 has also led to compelling opportunities in select consumer and retail names, particularly domestically oriented mass-market consumer discretionary names where earnings are aligned with population growth, wage stability, government reforms and improving household confidence. These names now screen more attractively on valuation after multiple compression.

In more cyclical areas of the Saudi market, including materials, utilities, and some industrials, our positioning is explicitly selective and valuation-led. We focus on situations where earnings appear to be at or near a trough, valuations already reflect adverse conditions, and there is either a structural cost advantage or contracted, long-dated revenue visibility. That said, we do not assume a near-term recovery in pricing given prevailing supply-demand dynamics. Exposure is sized conservatively considering ongoing sensitivity to commodity prices, funding conditions, and the pace and timing of government spending.

United Arab Emirates

In the UAE, 2026 earnings dynamics increasingly favour domestic activity linked sectors, particularly real estate, where EPS growth is expected to accelerate meaningfully even as index-level growth moderates. Real estate stands out with 22% EPS growth in 2026, supported by sustained transaction activity, population inflows, tourism, and foreign investment, making it the clearest high-torque exposure to economic momentum at still-attractive valuations.

Financials remain a core, high-quality compounder, but with EPS growth slowing to low single digits in 2026, their role shifts more toward stability than upside generation. Industrials and consumer discretionary further reinforce the domestic growth theme. These sectors benefit from infrastructure spending and consumption tied to mobility and services activity.