Mashreq Capital sees upbeat 4Q for MENA bonds, selective upside in equities

The final quarter of 2025 is expected to bring a supportive backdrop for MENA fixed income and some regional equities, according to Mashreq Capital’s latest quarterly outlook (pdf). The region’s bond markets remain supported by strong fundamentals and steady demand, while equities in markets like the UAE, Saudi Arabia, and Oman are benefitting from impressive macro turnarounds, reform momentum, and improving liquidity.

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MENA fixed income continues to outperform global peers, supported by resilient sovereign balance sheets, the US Federal Reserve’s easing cycle, and strong demand from local and Asian investors. The Bloomberg MENA USD Aggregate Index rose 8.6% in 9M 2025 and is on track for close to double-digit returns for the full year. Yields hover around 5.4%, roughly 10 bps above the five-year average and about 80-100 bps above other regional aggregates. Sovereigns and GREs remain the main performance drivers, led by Saudi Arabia (+309 bps), the UAE (+234 bps), and Qatar (+85 bps).

Default rates across MENA are projected to stay well below global EM averages. Corporate defaults have averaged just 0.4% over the past five years versus 1.5% globally, reflecting the region’s high-grade mix and limited corporate leverage.

Mashreq maintains a constructive stance on Egypt, supported by macro stabilization, fiscal reforms, and improving ratings momentum. Egypt benefits from high real interest rates, a narrowing current-account deficit, and IMF-backed reforms, with foreign reserves at USD 49 bn and inflation down to 12%, Mashreq Capital said.

It holds neutral views on Saudi Arabia and the UAE, citing solid fundamentals but limited room for further spread tightening. Saudi Arabia’s long end faces supply pressure amid rising issuance and a widening fiscal deficit, estimated at 5.3% of GDP, while the UAE remains preferred for quality duration exposure and defensive value. Mashreq favors short- to mid-duration Saudi bonds, selective infrastructure-linked corporates in Saudi Arabia and the UAE, and GCC AT1s and Tier 2s for attractive carry backed by well-capitalized banks.

Regional issuance has already reached USD 128 bn YTD, surpassing 2024’s total, and is forecast to hit USD 147 bn by year-end. Sovereigns and GREs dominate supply, with Saudi Arabia accounting for around 45%. Sukuk issuance remains robust at USD 74 bn, or 58% of the total.

On the equities front, Mashreq holds a constructive bottom-up view on Saudi Arabia and the UAE, where diversification agendas and liquidity conditions continue to improve. Saudi Arabia remains supported by increased fiscal discipline and new structural reforms, including potential foreign ownership limit increases and easing of Qualified Foreign Investor rules. In the UAE, tourism, AI-linked technology, and commercial real estate remain key structural themes. Despite short-term concerns over potential oversupply in Dubai property, strong end-user demand and disciplined construction suggest limited downside, Mashreq Capital says.

Mashreq identifies sustained oil price weakness as the primary macro risk, given its impact on fiscal balances. Saudi Arabia is most sensitive to oil price movements, while the UAE is relatively insulated. The report also notes that geopolitical risks have receded, shifting market focus toward oil price dynamics and policy execution.

THE CLOSING BELL-

The EGX30 rose 2.1% at Thursday’s close on turnover of EGP 7.1 bn (47.1% above the 90-day average). Local investors were the sole net sellers. The index is up 34.3% YTD.

In the green: Fawry (+7.6%), Eastern Company (+4.6%), and Egypt Aluminum (+3.9%).

In the red: Misr Cement (-2.5%), Egypt Kuwait Holding -EGP (-2.1%), and Telecom Egypt (-1.8%).