By Alay Patel, co-portfolio manager, Barings Emerging EMEA Opportunities
With the return ofpPresident Trump to the White House and a Republican-controlled Congress, global markets are once again grappling with the prospect of heightened protectionism. Renewed tariff threats, particularly targeting China and other major exporters, are prompting investors to reassess their exposure and seek opportunities in regions less directly affected by US trade policy. This shift is bringing renewed attention to emerging markets, trading at a significant discount to the S&P 500 index and representing less than a fifth of the market size of the S&P 500.
Within the EMEA region, the Middle East has become an area that many have turned their gaze to. Thanks to the ongoing structural reforms, economic diversification, and strong sovereign balance sheets, there are several economies that stand out.
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‘Insulation from US trade deals’
The Middle East is a region that many assume suffers from political instability, and its economy is primarily reliant on oil. However, this is not always the case, and there are several instances in which this is untrue. With a bit of research and on-the-ground analysis, the outlook for the Middle East is notably strong with broadly resilient fundamentals and is less vulnerable to US trade tariffs.
The region’s largest economy belongs to Saudi Arabia, and it has been leading the transformation agenda with its Vision 2030 strategy. While oil revenues remain a critical pillar to its economy, the Kingdom is making significant strides in developing its non-oil economy through giga-projects, tourism, and infrastructure, which has helped it diversify its economy and strengthen its investment case. However, the country’s high fiscal breakeven oil prices and ambitious spending plans mean that fiscal discipline will be essential if oil prices remain below expectations.
Another country in the Middle East that stands out due to its economic diversification is the United Arab Emirates (UAE). Due to its global integration with strong momentum in real estate, tourism, logistics, and financial services, the UAE is branching away from its oil economy and is attracting new investors. Interestingly, the country has shown its effort to branch out of the oil space by pushing for its cities, such as Dubai and Abu Dhabi, to expand their role in the energy and technology innovation sector. Overall, the country’s low fiscal break-even oil price and robust external position provide ample policy space to support growth and investment.
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Qatar is often overlooked in the Middle East, as most focus is on Saudi Arabia and the UAE, but it represents an interesting growth case for the region. Its economy is expected to grow to a new phase of LNG-led (liquefied natural gas) growth, its fiscal position is among the strongest in the region, and the government continues to invest in smart cities, logistics, and industrial development. Qatar’s strategic focus on Asia and its expanding trade and investment ties with China and India position it well for long-term resilience especially in the case of US trade tariffs that threaten the economies of many countries.
Kuwait is gradually emerging from a period of economic stagnation, with the government currently preparing to re-enter debt markets and implement long-awaited reforms, including in housing and labour markets. While the pace of change remains slower than in its neighbours, Kuwait’s vast sovereign wealth fund offers a strong buffer against external shocks.
Overall, EMEA equities in the Middle East offer a compelling mix of undervalued assets, reform-driven growth stories, and relative insulation from the US-China trade dynamic.
