Middle East presents unique investment opportunities, experts say

The Middle East presents unique opportunities, particularly in high-growth equity sectors, infrastructure, and private credit. However, challenges persist, including navigating geopolitical risks, tight credit spreads, and regulatory complexities, investment experts say.

From a macro perspective, the key challenge may stem from oil prices. “The election of a new administration in America creates pressures on both sides – with regulation and trade escalation likely to push prices down, and geopolitical issues likely to provide inflationary pressure. If prices stay range-bound between 70-80, which is the most likely scenario, that will put pressure on some GCC budgets, which could have negative implications for sovereign bond markets. There are also new opportunities coming from ongoing economic diversification initiatives in areas such as technology, healthcare and tourism, as well as ongoing investment into green energy,” said Silva Hanell, Head of Investment Solutions, Mercer, Middle East and Andrew McDougall, Head of Multi-Assets, Mercer, United Kingdom.

The region’s energy sector is poised for growth as Opec+ relaxes production quotas, and investments in renewable energy and hydrogen projects gain traction, said Meshal AlFaras, Head of Middle East, Africa & Central Asia at Janus Henderson. “Additionally, efforts by nations like Saudi Arabia and the UAE to diversify their economies through technology, tourism, logistics and infrastructure initiatives will continue to be key growth drivers. We are seeing significant private wealth and investment migration into the region, as high net worth individuals move to destinations in the UAE and KSA, stimulating investment in real estate and consumer markets. These opportunities need to be balanced by an awareness of the geopolitical and economic risks, with fluctuations in oil pricing likely to continue in 2025, with potential economic impact,” he added.

As the calendar turns, AlFaras thinks investors can benefit from the combination of a broader opportunity set and careful risk taking. “Within equities, a broadening of US market performance may improve the return prospects of innovators outside of technology, and the sanguine economic environment and falling financing costs put small- and mid-cap stocks in a particularly favourable light. Outside of the US, lower premiums and upside potential warrant a second look. China’s policy support will need to continue if it is to meet the magnitude of the country’s economic challenges. This, in turn, could support select European companies that export to China. Other areas of interest include India, where reforms are helping create a high-growth backdrop, and Japan, where supportive corporate governance reforms are being enacted,” he added.

For 2025, diversification should be a priority. T”We are also encouraging clients to re-underwrite their hedge fund exposure to ensure it reflects the structural properties targeted, namely low correlation and low beta to traditional equity and fixed income investments,” Hanell and McDougall said.

Investors are navigating geopolitical change across regions and adjusting to interest rates that analysts believe will remain higher compared to most of the last decade. “The global economy is somewhat late in the cycle, warranting caution, yet the data continue to defy expectations, and growth is steady. At the highest level, the combination of rate cuts and other potential accommodative policy in the US and stimulus in China should lend support to the global economy. Still, it is important to apply caution when adding risk. Broadly speaking, markets have been quick to price in the cycle’s extension, leaving valuations vulnerable to downgrades if risks increase,” AlFaras said.