GCC debt and equity markets stand to gain if the US Fed resumes its easing cycle in the back half of the year, Vice President and Head of Fixed Income at Mashreq Capital Amol Shitole told EnterpriseAM. Lower yields and tighter credit spreads would lift fixed income returns and spur issuance from both sovereigns and high-grade corporates looking to lock in cheaper funding.

It’s all about the context: If the Fed chooses to resume its rate-cutting cycle due to a mild slowdown in economic growth in the US, the cuts would support regional equities through stronger liquidity without undermining oil prices, he said. On the flip side, cuts triggered by a sharp US recession would be less supportive, as weakening global demand would pressure oil prices and curb credit appetite.

Mashreq expects the Fed to cut rates twice before year-end, in line with most analysts’ expectations, followed by at least four more reductions in 2026. Shitole said this outlook reflects expectations of moderating US growth, the long-term deflationary effects of tariffs, and the emergence of a more dovish Fed leadership next year.

REMEMBER- Fed Chair Jerome Powell’s run as chair ends in May 2026, and with the US President Donald Trump’s administration recent frustrations with him and his objections to the slow pace of rate cutting, speculation over who will be his successor — with names like Treasury Secretary Scott Bessent in the ring — abound.

A best-case scenario would see the Fed’s resumption of rate cuts drive high single-digit returns in GCC fixed income, supported by strong oil prices, tighter spreads, and robust investor demand, Shitole said. GCC equities would also benefit as lower borrowing costs stimulate credit demand.

The worst-case outcome would involve falling oil prices and a weaker USD eroding fiscal firepower, widening spreads, and dampening credit appetite, he noted. For GCC economies with currencies pegged to the USD, a weaker USD could also push up import prices, creating inflationary pressures.

OUTLOOK INTO 2026 –

Mashreq remains constructive on MENA fixed income, expecting mid-to-high single-digit total returns with carry (yield c.5.7%, 60 bps above the five-year average) as the main driver amid tight valuations.

Low default rates compared with emerging market peers also reinforce the region’s appeal. Shitole pointed to Egypt, Oman, and Morocco as standouts on reform momentum and improving credit metrics, while Saudi bonds are favored in the belly and front end, with the UAE and Qatar offering defensive value.

On equities, Shitole sees structural reforms in Saudi Arabia, Oman, UAE, and Kuwait supporting investments and capital flows in energy, IT, real estate, and hospitality.

Tags: