Foreign investors pull USD 2.8 bn from MENA stocks as Mashreq cuts 2026 return outlook

Net foreign outflows from MENA equities jumped to USD 2.8 bn in 3Q 2026, up from USD 500 mn in 2Q, according to Mashreq Capital’s 4Q 2026 MENA Fixed Income and Equity Markets Outlook (pdf). The asset manager cut its full-year regional equity return forecast to 5-7% from 6-8%, favoring the UAE and Oman while remaining cautious on Qatar and Kuwait.

Saudi Arabia took the biggest hit: Foreign investors withdrew USD 1.5 bn from Saudi equities in 3Q, reversing USD 1.6 bn of inflows in 2Q and accounting for more than half of regional outflows. Kuwait lost USD 700 mn and Dubai USD 500 mn, while Abu Dhabi and Qatar were broadly flat. The selling intensified in September as geopolitical risks mounted.

REMEMBER- Saudi Arabia’s September sell-off was already flashing warning signs. The Tadawul All Share Index (TASI) fell 6.2% m-o-m to its lowest month-end close of 2026, while foreign investors sold a net SAR 4.33 bn, as we reported last week. Higher interest rates and geopolitical uncertainty weighed on valuations, although market watchers described the pullback as a risk-off phase rather than a structural deterioration.

The market scoreboard shows just how wide the gap has become: The S&P Pan Arab Large Composite Index slipped 0.6% in 3Q, leaving it up 2.2% year to date (YTD). UAE equities gained 5.3% during the quarter, while Qatar shed 9.7%. Oman leads the year-to-date rankings with a 33.1% gain, against Qatar’s 11.2% decline. The UAE also bucked the wider (GCC) sell-off in September, with Dubai and Abu Dhabi the only two Gulf exchanges to finish the month in positive territory.

Oman’s geography is proving an advantage. The sultanate has kept crude flowing through ports outside the Strait of Hormuz, allowing it to benefit from higher oil prices and an Omani crude premium over Brent. Mashreq remains overweight Oman, where 2Q GDP grew 5.1% and government revenue rose 13% in 1H. FTSE Russell has also placed Oman on its watch list for a possible upgrade from frontier to secondary emerging-market status, with potential implementation after 2027.

The UAE gets an overweight, led by Abu Dhabi: Mashreq favors energy infrastructure, logistics, and companies tied to the Adnoc value chain, supported by Abu Dhabi’s project pipeline and export access through Fujairah. Dubai’s weakening residential market is a different story, with prices easing, transactions slowing, and new supply accelerating. Banks also face rising funding costs as credit growth outpaces deposit growth, leaving Mashreq underweight financials overall.

Saudi Arabia remains a stock-picker’s market: Mashreq is neutral on Saudi overall but favors energy and grid infrastructure, data centers, and companies with multiyear contracted backlogs. It remains cautious about contractors exposed to the reprioritization of gigaproject spending. The disconnect between earnings and returns is striking: Saudi corporate earnings have grown an average of 8.1% annually over five years, while the equity market has returned just 1.2% a year.

Qatar and Kuwait have yet to find their footing: Qatari stocks are at their cheapest price-to-book level since 2009, but Mashreq wants evidence of recovering liquified natural gas (LNG) exports before turning more constructive. Kuwait faces its own constraints, with crude exports recovering to only around two-thirds of last year’s level. Mashreq remains underweight both markets.

Egypt is a more balanced call: Mashreq remains neutral on Egyptian equities but favors banks, which stand to benefit when monetary easing resumes. It expects rates to remain at 19% through year-end, with cuts beginning in 2027. FY 2026 growth reached 5.1%, and inflation eased to 14.5%, although September’s Purchasing Managers' Index (PMI) of 47.2 signals continued weakness in private-sector demand.

The bond sell-off has opened another window: The Bloomberg EM USD Aggregate MENA Index lost 3.8% in 3Q, taking its YTD decline to 3.2%, largely as higher US Treasury yields weighed on prices. That pushed the index yield to 6.5%, while higher-quality Gulf sovereigns now offer close to 6%. Mashreq favors UAE, Moroccan, and Egyptian conventional sovereign debt but expects full-year regional bond returns to be flat to mildly negative.

Sukuk have weathered the storm better: The Bloomberg USD Sukuk Index declined 1.6% year to date through September, compared with the MENA bond index’s 3.2% loss. Mashreq favors sovereign sukuk from Oman, the UAE, Turkey, Egypt, and Pakistan. The relative resilience comes despite a tougher issuance environment: GCC sukuk sales fell 23% y-o-y to USD 51.1 bn in 1H, as we reported last month.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.3% last Thursday on turnover of SAR 3.6 bn. The index is down 3.7% YTD.

In the green: Ades Holding (+4.1%), Arabian Pipes (+3.4%), and SAL Saudi Logistics Services (+3.2%).

In the red: Saudi Paper Manufacturing (-6.7%), Saudi Fisheries (-6%), and Saudi Aramco Base Oil (-5.3%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.1% last Thursday on turnover of SAR 26.1 mn. The index is down 6.2% YTD.

In the green: Lana Medical (+7.2%), Atlas Elevators General Trading and Contracting (+6.9%), and Rimath Hospitality (+6.3%).

In the red: Mulkia Investment (-9.9%), Future Vision for Health Training (-9.1%), and Munawla Cargo (-7.4%).