MENA fixed income rallies, while equities diverge in 2Q 2025 -Mashreq Capital

The second quarter of the year was a mixed bag for MENA markets. Bonds are holding steady on solid returns and sovereign supply, while equities are more uneven — dragged by oil in some markets and lifted by reform and demand in others, according to Mashreq Capital’s latest quarterly outlook (pdf).

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MENA bonds delivered a solid return in 1H, shrugging off global volatility and regional flare-ups. The Bloomberg MENA USD Aggregate Bond Index climbed 4.4% during the first half of the year on the back of a 2.6% rally in 1Q and a 1.7% gain in 2Q. The index continued to offer a yield of 5.7%, some 60 bps above its five-year average, the report said.

Gulf sovereigns and government related entities (GREs) drove most of the returns, with sovereigns contributing 256 bps and GREs contributing 118 bps. Saudi Arabia (+160 bps), the UAE (+122 bps), and Egypt (+36 bps) led the way in the six months ending June, according to the report.

Mashreq Capital’s sovereign picks: The UAE and Qatar offer stability through low breakeven oil prices and diversified economies, supporting steady spreads and investor demand, Mashreq Capital said. Saudi remains fundamentally strong, though long-end bonds face pressure from supply, the report said. Oman benefits from fiscal consolidation and policy credibility, with potential for rating upgrades, while Morocco sees tightening spreads from reforms and discipline, and Egypt is supported by GCC aid, IMF backing, and improving external balances.

It’s “positive” on Oman, Egypt, Morocco, and Turkey, and “neutral” on Saudi Arabia, UAE, Qatar, Kuwait, and Jordan, as these markets offer stability but may face headwinds. Bahrain stands alone with a “negative” view.

The take on corporate fixed income: Mashreq Capital remains overweight on select infrastructure-linked bonds in Saudi Arabia and the UAE, where strong sponsors, predictable cashflows, and sound structures offer compelling yield premiums over sovereign benchmarks, the report said.

GCC AT1s and Tier 2s in particular offer attractive carry opportunities, supported by well-capitalized, often state-linked banks, the report said. On the other hand, Mashreq is cautious on Bahrain and Sharjah, where weakening credit fundamentals underscore the need for more attractive entry points, despite the assumption of broader Gulf support.

The region’s bond supply is expected to reach USD 125 bn by year end, with around 62% already executed in 1H. Saudi Arabia alone accounted for 46% of issuance so far this year. Meanwhile, Kuwait is prepping a landmark USD 20 bn bond issuance, its largest ever, after passing a long-delayed debt law. The UAE is also expected to be a major contributor to 2H supply, with Sharjah and Ras Al Khaimah already active in 1H and further issuances expected at both the federal and emirate level, the report said.

ON THE EQUITIES SIDE-

Bullish on Emirati, Qatari equities: Sustained oil price movements remain the dominant driver of fiscal dynamics across the region, with the UAE and Qatar best positioned in a low-price environment due to their diversified economies and low fiscal breakeven levels, while Saudi Arabia, Kuwait, and Oman exhibit higher sensitivity, the report said.

Mashreq Capital remains cautious on sectors tied to government spending, maintaining limited exposure where fiscal tightening could pose downside risk. Meanwhile, Dubai real estate remains resilient, with Emaar recording its strongest month in May, and despite slower rent growth, there are no signs of distress.

Key market signals ahead: Earnings, projects, and pressure points. The upcoming earnings season will be closely watched, especially in Saudi Arabia, where any further deceleration in earnings growth could weigh on overall market sentiment. Financials are expected to remain solid performers, supported by robust sector data from both Saudi and the UAE, while materials and cyclical names — particularly aluminium producers and copper miners — may deliver upside surprises. A slowdown in regional project awards has also emerged as a concern — if this trend persists, it could drag on earnings growth over the next 12–24 months. On the tourism front, geopolitical tensions pose a lingering risk to arrivals, though recent improvements suggest a more stable outlook.

THE CLOSING BELL-

The EGX30 rose 1.0% at Thursday’s close on turnover of EGP 4.5 bn (10.2% below the 90-day average). Regional investors were the sole net sellers. The index is up 13.7% YTD.

In the green: Edita (+7.8%), GB Corp (+2.8%), and CIB (+2.3%).

In the red: Beltone Holding (-2.6%), Alexandria Mineral Oils (-1.3%), and Juhayna (-0.9%).