The Gulf's Quiet Ascent: Beyond Oil, A New Financial Order Beckons

“Tell you a story / happen long time ago / little bitty pretty one / I’m watching you grow”

Bobby Day. Lyrics to Little Bitty Pretty One, 1957)

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This transformation has been multifaceted. Forget the image of dusty trading pits. These nations have invested heavily in cutting-edge technology, building state-of-the-art trading platforms, clearing systems, and risk management frameworks. The DFM and the Tadawul's technological leaps, in particular, are not mere upgrades; they signal a commitment to transparency and efficiency, bringing these markets in line with, and in certain cases beyond, international best practices. This modernisation has been coupled with crucial regulatory reforms, strengthening corporate governance, enhancing disclosure, and prioritising investor protection. The Saudi Capital Market Authority's (CMA) drive to align with global standards speaks volumes about this commitment and is most clearly conveyed through their accelerated inclusion into the EM framework – which we have written extensively about before.

But infrastructure and regulation are only part of the story. The other facet has been the diversification of financial products. Beyond the traditional realm of equities, these markets are now embracing derivatives, ETFs, REITs, tokenisation of RWAs and, crucially, sukuk. Notably, the burgeoning sukuk market has positioned the region as a global hub for Islamic finance, attracting a unique and substantial investor base. This expansion of offerings allows investors to diversify their portfolios and manage risk more effectively, a key factor in attracting institutional investors seeking broader exposure.

The result of these combined efforts has been a dramatic shift in the investor landscape. No longer solely the domain of local retail investors, these markets are now attracting significant participation from institutional players – sovereign wealth funds, pension funds, and global investment giants. The result has been a shift from 98% retail participation in Tadawul’s daily trading wallet, to a split of thirds between retail (which has still grown), foreign institutions and local institutions. Another way of understanding the scale of change is to understand that Tadawul moved from a T+0 cash market with no custodial DVP structure available to investors, to running a market today where up to half of its daily value traded could come from low-touch sources.

From a QFI standpoint, the inclusion of these Gulf markets in major global indices has triggered a wave of passive investment, further deepening liquidity and enhancing market stability; even the relatively larger bucket of active allocators suffering from China fatigue and focused on India are increasingly looking towards the GCC as a complementary allocation (and rightly so) to their EM portfolios as they undergo longer term strategic asset reallocations. This influx of sophisticated capital underscores the growing confidence in the region's financial architecture.

Looking ahead, the next five years promise even greater transformation. The relentless pursuit of economic diversification will continue to fuel innovation, bring attractive IPOs to the markets and create new investment opportunities more broadly. The embrace of fintech, from blockchain to AI, will further streamline operations and improve accessibility as well as cement the region as a leader in the space (regulatory reform and government support is meaningful and consistent in this space). And as regional integration deepens, these markets will become even more interconnected, attracting a wider pool of global investors.

This isn't just a regional story; it has implications for the entire emerging market landscape. As these markets mature and deepen, they are poised to capture a larger share of the emerging market pie. While geopolitical risks and commodity price fluctuations remain a factor, the overall trajectory is clear. The Gulf states are building not just markets, but entire financial ecosystems – robust, sophisticated, and increasingly integrated with the global financial system. They are leveraging their strategic location, their access to both developed and emerging market tools and characteristics, and their unique position within the flows of global capital. The narrative is shifting. It's no longer just about oil; it's about a new financial order emerging from the sands, one that demands the world's attention. Over the next five years, expect the Gulf's voice in the global financial conversation to grow louder, its influence to expand, and its share of the emerging market investment universe to significantly increase. The quiet, albeit audible, ascent has begun, and its reverberations will be felt for decades to come.

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