UAE equities are entering 2026 on firm footing — but global volatility, lower interest rates, and an expected oil surplus threaten to introduce new headwinds to heavyweight sectors that have in the past offered plenty of upside to investors. Energy and financial services equities could start dipping slightly amid a lower interest rate and volatile oil price environment, following a strong rally in 2025.

Still, with a positive macro backdrop and strong fundamentals underpinning equities, the outlook is positive for both the DFM and ADX, according to two separate reports from Marmore MENA Intelligence here (pdf) and here (pdf).

Along with strong earnings growth, attractive valuations, and robust fundamentals, the UAE was widely viewed as a “safe haven” market in 2025. As investors diversified their portfolios amid geopolitical uncertainties in the US, the UAE emerged as a “tariff-safe” option offering stable returns.

That safe haven standing might not be as straightforward this year, George Khoury, head of global research at CFI Financial Group Holding, told EnterpriseAM UAE. “While regional stability, regulation, and market development continue to support the UAE, much of the inflow-driven upside has already been captured.” This means that future returns will come more from selectivity than broad market exposure, he added.

Geopolitical issues and uncertainty from US President Donald Trump could impact risk sentiment, which could trickle down to UAE markets, Century Financial’s Chief Investment Officer Vijay Valecha said in an emailed note.

So what will drive inflows this year?

Much like last year, it’s most likely down to earnings growth, Marmore says, and the outlook there remains constructive. On the DFM, corporate earnings are expected to have grown around 15.8% in FY 2025, moderating slightly to 10% growth this year, according to Marmore. As for the ADX, earnings growth normalized to 3.2% in FY 2024 after a post-pandemic surge, but is set to re-accelerate to 13.2% in 2025 and settle at a more sustainable 9.4% in 2026.

Yes, but… the sectors driving growth might be changing

The banking engine is sputtering: With the Fed (and subsequently the CBUAE) expected to resume its rate-cutting cycle, net interest margins are compressing, despite an increase in lending. Financial services stocks on the DFM are expected to see earnings growth slow to just 1.3% this year, down from 11.1% last year, while ADX equities in the sector are expected to fare slightly better with 5% projected growth, though that’s down from a massive 33.4% forecast growth in 2025.

Energy will likely be a drag: Usually the heavy hitters, Abu Dhabi’s energy giants are potentially facing a contraction in earnings, with Marmore expecting a 1.4% y-o-y dip. Oil prices are expected to average around USD 55 / bbl in 2026 due to global oversupply, putting pressure on names like Adnoc Gas and Adnoc Distribution.

Still, the two sectors remain relevant mainly because of their defensive nature and income profile, Khoury said, explaining that UAE investors are generally more income-focused and less aggressive than investors in markets like the US, placing a higher value on dividends and lower volatility.

Real estate must carry the load: With banks nearly flat and energy down, the burden of growth falls squarely on real estate. The good news is that the real estate sector in both Dubai and Abu Dhabi has been benefiting from a years-long boom amid strong demand and population growth. The momentum is likely to continue to prop up earnings growth: in Dubai, the sector is projected to see earnings jump 20% this year, while in Abu Dhabi, the forecast is even more aggressive at 23.5% growth.

A large portion of the expected earnings growth in real estate is supported by real activity, Khoury tells us, noting that handovers are scheduled to accelerate from 1H 2026 through 2H 2027, and these should be followed by meaningful banknote inflows as payment schedules progress. “That said, headline earnings may still benefit from accounting effects, and growth beyond this handover cycle may not be as strong. This makes the timing and sustainability of earnings an important factor when assessing valuations,” Khoury said.

This is especially because real estate carries substantial weighting in both indices, and with limited alternatives of a similar scale, it would be difficult for other sectors to absorb a material disappointment in real estate, he added.

Real estate could also be impacted by volatility, and it’s not immune to a potential risk-off sentiment resulting from lower interest rates down the line, Valecha said, adding that utilities and infrastructure-linked stocks could also be affected.

The bottom line? “While real estate offers stronger growth potential, it also comes with higher volatility and execution risk,” Khoury noted, so selective exposure to real estate, along with banks and energy to stabilize portfolios, makes sense.

One thing that could drive more upside? Dividends

DFM offers a dividend yield of nearly 5.0%, providing a massive cushion against volatility, while the ADX offers a lower yet steady 3% yield, Marmore said. Meanwhile, valuations are still attractive. Price-to-earnings ratios are hovering below historical averages (15.5x for ADX and 10.5x for DFM).

“Recent performance has not been driven by excessive valuation re-rating,” Marmore Intelligence notes. This means that both Dubai and Abu Dhabi have benefited from “a blend of growth-oriented companies alongside relatively lower multiple stocks.”

The questions on everyone’s mind

With Saudi valuations looking cheaper, could we see more capital rotating to Riyadh in early 2026? “Short-term rotation toward Saudi Arabia is possible, especially after last year’s correction,” said Khoury, while sticking with the view that the UAE continues to hold structural advantages that support longer-term capital inflows. “These include the growth of crypto-related activity, the expansion of ETFs and investment funds, and the recent launch of the UAE treasury sukuk, all of which strengthen the UAE’s capital-market ecosystem and keep it attractive to both regional and international investors.”

The bottom line

If offered a fixed 5% return on banknotes today, would investors do better pouring that into UAE stocks? “Yes, but not without selectivity and volatility,” said Khoury. “Beating a [fixed] 5% return will not come from owning the market broadly. It will require careful stock selection, disciplined timing, and a balance between income-generating names and growth [prospects].”

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