Gulf Cooperation Council stock markets, which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, have defied the global downturn in initial public offerings, with demand for new listings reaching unprecedented levels. Shares in the region’s newly IPO-ed stocks rose 7% on average during their first trading day in 2024.
The International Monetary Fund forecasts GCC region growth at approximately 4% annually through 2028, more than double the projected growth rate for advanced economies. A tech-driven IPO boom could reshape GCC markets in 2025. For example, alongside established players United Arab Emirates and Saudi Arabia, Oman is making waves with OQ Exploration’s $2.03 billion Muscat listing.
Against this backdrop, alternative financing firm EquitiesFirst could be positioned to provide financing solutions for investors seeking to participate in the region’s IPO momentum.
Record-breaking demand drives market activity
The GCC’s IPO market demonstrated considerable strength throughout 2024, with 30 new listings raising $5.2 billion in the first nine months alone. While this represents a slight decrease from 2023’s pace, late-year activity points towards listings activity matching or exceeding last year’s total of $10.7 billion across 46 IPOs.
Recent offerings highlight the intense investor appetite. Lulu Retail Holdings, the region’s largest retail chain, attracted $37 billion in orders for its $1.72 billion Abu Dhabi IPO. The supermarket chain Spinneys drew $19 billion in orders for a significantly smaller $375 million offering. Saudi Arabia’s Fakeeh Care Group gathered $91 billion in orders for its $763 million IPO.
The flurry of successful listings extends to the technology sector. Talabat, an online food-delivery business, raised $2 billion in what became the largest global technology IPO of 2024. This represented the first-ever technology sector IPO on the Dubai Financial Market, signaling an expanding range of investment opportunities in a region that has historically relied primarily on energy markets.
Market diversification fuels opportunity
The GCC equity landscape has transformed substantially since 2015, when Saudi Arabia first opened its market to non-GCC investors. The region now comprises 6.5% of the Morgan Stanley Capital International Emerging Markets Index, representing over $490 billion in market capitalization across 72 stocks. This dramatic increase, up from 1.5% representation in 2014, reflects the region’s growing importance in global markets.
More than 120 new companies joined the MSCI GCC IMI index over the past five years, nearly doubling the total number of listed entities. These additions have expanded beyond traditional sectors like finance and energy, which previously dominated the market. Information technology currently accounts for just 1% of the GCC index, compared to over 25% in both developed and emerging market indices, suggesting significant room for growth in this sector.
The market cap-to-GDP ratio for GCC markets has steadily increased, though it remains below levels seen in developed markets. Still, this could again indicate potential for further expansion. Saudi Arabia’s ratio, in particular, has shown consistent growth since opening its market to foreign investors.
Alternative financing solutions
EquitiesFirst specializes in providing equities-based financing solutions that could be a viable option for investors participating in the region’s IPO surge. The company, founded in 2002, has issued over $4.5 billion in loans globally and maintains offices across eight countries, including a presence in the United Arab Emirates.
EquitiesFirst’s financing model enables investors to access liquid capital by financing against their existing equity holdings. This approach allows investors to maintain exposure to long-term equity positions while accessing immediate liquidity to finance new potential opportunities.
Market structure and investment considerations
The GCC equity markets present unique characteristics for investors. Most regional currencies maintain pegs to the U.S. dollar. This can reduce foreign exchange risk compared to other emerging markets. Additionally, GCC equities show a relatively low correlation with both developed and emerging markets, potentially offering diversification benefits for global portfolios.
GCC markets also exhibit a lower correlation with oil prices than commonly assumed, with correlation coefficients remaining moderate over the past decade. This trend supports the narrative of successful economic diversification efforts across the region.
The region’s IPO pipeline remains robust heading into 2025. More than 50 Saudi Arabian companies currently await listing approval. Notable upcoming offerings include Abu Dhabi’s Etihad Airways and Saudi Arabia’s medical procurement firm Nupco. Technology sector offerings may increase, addressing the current underrepresentation in regional indices.
Financing dynamics and market access
Traditional margin financing from banks and brokers often comes with constraints including short terms, limited leverage, and restrictions on use of proceeds. Equities-based financing through firms like EquitiesFirst provides an alternative structure that may offer more flexibility for investors seeking to participate in regional offerings.
An alternative financing option could be particularly relevant given the self-reinforcing nature of IPO demand in the Gulf. Strong investor interest leads to increased order sizes as participants attempt to secure meaningful allocations. This dynamic requires additional liquidity from investors, who might otherwise need to sell existing holdings or reduce cash reserves.
Foreign institutional investors have demonstrated growing confidence in the region, with perceptions of geopolitical risk diminishing in importance compared to economic fundamentals. The UAE’s business-friendly environment has attracted particular attention, with its IPO market featuring a diverse range of business models beyond state divestments.
Market outlook and considerations
Several factors support continued IPO activity in the GCC. The U.S. Federal Reserve’s anticipated interest rate reductions could benefit regional equity markets as fixed-term deposits mature and investors seek alternative investments. Additionally, government initiatives to diversify economies continue driving new listings across various sectors.
The collective GDP of GCC nations is projected to exceed $2 trillion by the end of 2024. Vision plans launched by various GCC governments are targeting increased private sector participation, with Saudi Arabia aiming to raise private sector GDP contribution from 40% to 65%.
However, investors should note that while GCC markets have made significant progress in improving access and attracting foreign investment, liquidity levels remain lower compared to major emerging markets. This consideration affects both primary market participation and secondary trading strategies.
The combination of strong IPO performance, expanding sector diversity, and available financing options presents opportunities for sophisticated investors in GCC equity markets. As the region’s capital markets develop, alternative financing structures may play an increasingly important role in facilitating market access and investment strategies.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any finance decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.
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