Franklin Templeton’s Salah Shamma on what a US-Iran deal would mean for Tadawul

What happens to Saudi equities the day a lasting peace pact is signed? The question has moved to the forefront of investors’ minds as the diplomatic track lurches between collapse and revival. While a fragile, Pakistan-mediated ceasefire has held in fits and starts since April, the Islamabad talks ultimately broke down over the two most contentious points: the reopening of the Strait of Hormuz and the status of Iran's nuclear program. A US naval blockade has kept the waterway throttled since.

BACKGROUND- Tehran suspended back-channel contact again at the start of this month, sending crude sharply higher, even as US President Donald Trump insists an agreement to reopen Hormuz and extend the ceasefire is reachable within weeks.

The upshot? A fear premium remains baked into Gulf valuations, and the upside if it unwinds is, for now, a hypothetical that investors are only beginning to price.

We put five questions to Salah Shamma, head of MENA equities at Franklin Templeton, on how Tadawul re-rates if that premium clears and whether Saudi or the UAE captures the rebound. Edited excerpts from our conversation:

EnterpriseAM: If a pact lands and the risk premium unwinds, what re-rates first on Tadawul: the large-cap, PIF-adjacent names or the small- and mid-caps?

Salah Shamma: We expect the big names to recover first. Foreign money tends to go into the largest, easiest-to-trade stocks before anything else, such as the banks and the big consumer companies. The smaller companies sit out the first move, then catch up quickly once local confidence returns.

E: You’ve said crises create opportunity and that you expect a decisive policy response that accelerates the transformation. What pays off on a pact?

SS: It’s a confidence story and a spending story. Peace strips the fear premium out of the market and makes money cheaper, which lifts valuations across the board, with banks gaining most as the government leans on them to fund the investment plans, channeling capital through the sector to carry the next leg of spending.

That same shift runs deeper. The war showed how exposed the region is, and when one waterway can choke off a fifth of the world's oil, the lesson is to build backups. A pact pulls forward years of resilience spending into a short window — think new pipelines and routes that bypass chokepoints like Hormuz, alternative ports and overland links, and a step-up in tech and cybersecurity to protect critical systems.

For investors, that money lands in clear places: oil infrastructure, logistics and ports, and telecom and IT. The appeal is that it’s government-led and defensive. It keeps flowing regardless of what oil does, which makes it steadier than a straight wager on crude. And it’s regional, not just Saudi — the rest of the GCC faces the same push to turn resilience from a slogan into a budget line.

E: A pact could bring Iranian supply back and pressure oil. Does cheaper oil undercut the Saudi equity case?

SS: Cheaper oil is less of a threat than it sounds. Even with a pact, oil is expected to trade higher than earlier forecasts going into 2026. That’s the sweet spot: Saudi Arabia ships full volumes again as the strait reopens, but prices stay firm, so you get the best of both. The budget only becomes a real problem if oil falls hard and stays below roughly USD 60, which isn’t, in our view, the likely path over the medium term. Even after a record quarterly deficit, healthy prices close that gap fast.

E: Does peace revive the “seller's market” in primary issuance?

SS: The conflict froze new listings and government stake sales. What brings them back isn’t just a ceasefire but the reform process and investment plans staying on track. As those continue, investors find their way back and appetite improves, which in turn allows issuance to resume, deepening and broadening the market over time. The only catch for existing holders is a lot of new shares to absorb at once.

E: Where do foreign inflows go first if the all-clear sounds — Saudi, or do you expect the UAE to capture the rebound, given how investors behaved through the conflict?

SS: The striking feature of this period was the divergence in capital flows: money moved into Saudi Arabia while exiting the UAE. Foreign investors bought nearly USD 1 bn of Saudi equities in April, while the UAE recorded outflows.

That helps explain why the rebound may initially favor the UAE. Having fallen further, it has a greater scope for a sharper recovery. Whether that recovery evolves into sustained growth, however, will depend on the scale and execution of Abu Dhabi's new investment plans, as well as the strength of Dubai's tourism revival.

Saudi Arabia, meanwhile, continues to attract patient, long-term capital. With the market now fully accessible to foreign investors and further liberalization of foreign ownership limits expected, the Kingdom remains a compelling destination for structural investment flows.