Understanding what’s driving regional capital markets — and what signals we should watch in the back half of the year: Saudi’s IPO market made a strong showing in terms of volume and value in the first half of the year, the EGX is outperforming its regional peers year-to-date, and the UAE is holding steady despite regional volatility and weaker oil prices. Altogether, it’s been a strong year so far for regional capital markets.

We sat down with EFG Hermes' Head of Investment Banking Mostafa Gad to break down what’s behind the momentum, what foreign investors are looking for, and how to know we’re on the right track for greater depth in capital markets. Gad also walked us through some of the stepping stones that helped the region’s most active markets drive success. Below are edited excerpts from our conversation:

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Gad sees equity capital markets (ECM) activity in the region as part of a multi-year trend rather than just a 1H 2025 phenomenon. The current cycle, he says, has been running strong for the past three to four years, fueled by structural reforms across the region.

IN CONTEXT- Saudi Arabia’s main index is down over 9% YTD, while Dubai’s benchmark rose 20%, and ADX is up more than 9%. EGX is up nearly 14% YTD.

The fundamentals in the region are far stronger than many expect, according to Gad. Perceived risk is the biggest misconception foreign investors have about the region. Gad says the perception is far worse than the reality. From afar, the region might seem unstable — but their confidence in the region rises quickly once they actually visit and engage with the market directly.

Despite a rocky geopolitical landscape, Gad is cautiously optimistic about the second half of the year. Even with global headwinds such as the Trump administration’s trade policies, Gad isn’t too concerned about the impact of these developments on regional markets. In fact, he expects geopolitical tensions to ease, rather than intensify, in the near term. Markets have shown resilience, and if that holds, 2H could shape up nicely. Looking ahead, the pipeline for IPOs in the second half is expected to surpass that of the first half.

EFG Hermes has a packed calendar for the remainder of the year. The firm is preparing several issuances in Saudi, the UAE, and Kuwait. On the equity side, they’ve already closed four transactions and aim to complete another three to five before year-end. M&A and DCM pipelines are also very active.

THE LOCAL STORY-

How Saudi became a success story: Reforms in the Kingdom kicked off six or seven years ago with a push to attract foreign investment and liberalize capital markets. While outsiders may still see the economy as government-heavy, Gad points out that the private sector is both deep and sophisticated, and authorities have been working to align with global standards to make the business environment familiar to foreign investors. The Kingdom’s market is evolving toward international standards in both structure and execution, Gad said, adding that regulatory reforms played a key role in making the market more accessible and investor-friendly.

What’s particularly notable is the diversity the Saudi market now offers, Gad said, explaining that investors can tap into a wide range of sectors, from energy and infrastructure to healthcare and consumer goods. Each company brings a different story, management style, and growth potential, making the market both deep and dynamic.

Now the results speak for themselves: The Saudi market has been averaging around 20 listings per year — figures that were virtually unheard of in the past, he said. Many of these offerings have been substantial in size, reflecting growing investor confidence and interest, he added.

Oil prices are worth watching — but not a red flag right now: With prices hovering in the USD 68–70 range, the kingdom still has ample room to maneuver. Crucially, the government retains the flexibility to scale back or delay megaprojects if needed — and that kind of control helps maintain market confidence and keeps fiscal risks in check, Gad noted.

Gad attributed muted debuts on Tadawul to stretched valuations, saying that a correction may actually be a healthy development. This correction is viewed positively as a breather that allows for a reset toward more normalized valuation multiples. It also helps in creating more sustainable market capitalizations for listed companies.

Market correction is seen as a healthy reset for Tadawul. The market being down YTD — but not in bear territory — appears to be driven by multiple factors. One of the key contributors is the drop in oil prices, along with the market coming off what were likely all-time high valuations for nearly every stock, Gad noted. The correction sets the stage for a new wave of growth in the Saudi market once the current cycle runs its course. That rebound could happen later this year or in 2026, but confidence remains strong that it is on the horizon, Gad told us. When it does arrive, the market will be building from a more solid foundation, he said.

Think of this as a pit stop in Formula 1 — it’s like the market is changing its tires to come back even faster and stronger in the next laps.

ELSEWHERE IN THE REGION-

What’s holding back the IPO pipeline in the UAE compared to regional peers? Saudi Arabia simply has a larger and more developed private sector than the UAE, according to Gad. Even without the big government listings, there are more companies ready to go public in Saudi. The UAE’s private sector, while dynamic, is smaller, hence fewer IPO candidates.

Authorities in the UAE understood that to build a vibrant and liquid equity market, they needed to list successful state-owned enterprises. Landmark IPOs such as DEWA and Salik helped attract investor attention, injected liquidity, and laid the groundwork for increased private-sector participation down the line.

Diversification is a key driver of resilience on the DFM: The exchange has shown resilience in its YTD performance largely because the market has somewhat decoupled from oil prices, thanks to its diversified economic drivers, Gad said. People have historically seen a strong correlation between real estate and oil prices. But that relationship seems to have been tested again this year, and it’s not holding up the way it used to.

And over in Egypt, the EGX is still lagging on listings — mostly thanks to a lack of deep domestic institutional capital. Big IPOs typically require foreign participation, and that had been on pause due to FX uncertainty and repatriation concerns.

What foreign investors want from Egypt: “Growth, plain and simple.” To attract foreign interest, Egyptian companies need to show robust growth, particularly in an inflationary environment, he explained, adding that with interest rates above 20%, dividend yields alone won’t cut it. Why invest in a stock when you can get a 20% zero-risk return? Gad says foreign investors are now looking for high-growth businesses with strong fundamentals and the resilience to withstand currency shocks.

Could Egypt see more listings this year? Possibly, but don’t hold your breath. It will likely take another 6-12 months before the EGX sees larger offerings again. Investor confidence is building, but it takes time to translate that into action.

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