Mubasher: The MENA region still has more to offer in 2026, and when building on Kuwait delivering on its promises in the past couple of years, especially last year, the country is forecast to be the region’s black horse, according to a report by EFG Hermes of EFG Holding Company.
Markets across MENA have enjoyed a strong run over the past few years, thanks to reformist policies and a favorable external environment. EFG Hermes expects the positive performance to extend into 2026.
The external environment remains largely favorable for emerging markets, thanks to a weaker USD and low oil prices. While further rate cuts in the US are expected to be limited, the current rates remain conducive to capital inflows and domestic economic activity.
Furthermore, the region has withstood 2025’s elevated geopolitical tensions. And with risks for the latter receding, though not by any means vanishing, this should help further boost the region’s strong growth in consumption and hospitality.
Kuwait Outlook
EFG Hermes’ report reflected a positive fundamental view on Kuwait as it remains intact, with the country’s leadership focusing on delivering economic reforms and is strongly committed to its investment cycle.
It added: “We turn to a tactical ‘Neutral’ stance on the equity market, as calling for a further rally from current levels remains contingent upon the pace and effectiveness of implementing the next wave of regulatory reforms.”
Meanwhile, the banking sector has already delivered strong returns in 2025, with leading name the National Bank of Kuwait (NBK) seeing its historic valuation premium to regional banks extending further.
EFG Hermes said: “We await progress on regulations boosting participation of the private sector into the property market; this remains a critical step for banks to utilise the newly approved Mortgage Law. Further fiscal reforms are also critical to boost the sustainability of the country’s fiscal position, in our view.”
Overweight on UAE and Egypt
EFG Hermes stated it remains overweight on the UAE’s markets, believing they still have upside ahead despite their already impressive run over the past few years.
The UAE’s domestic demand play is still largely intact and has surprised positively in 2025. The banking sector remains in the highlight: a smaller hike in regulatory countercyclical buffer means fewer risks for a rather positive credit growth story. Expansionary fiscal positions – at both the individual emirate and federal levels – are an additional advantage.
As for Egypt, the market is best to benefit from the positive external environment highlighted above. Indeed, the country has been the best-performing in MENA in 2025, and it’s still believed to have more upside in 2026.
Catalysts for Egypt include further rate cuts, as a projected 600-700 basis points (bps) over the coming 12 months, pickup in domestic demand, as incomes recover, and an improving external position.
The report noted: “Considering the favourable earnings growth potential, the market’s c8x forward P/E remains undemanding, in our view.”
Saudi Arabia
EFG Hermes said the bearish stance on oil, downbeat earnings outlook, and prospects of slower growth in bank earnings are all factors driving the ‘Neutral’ rating on Saudi Arabia.
Uncertainty was the key driver for the Saudi market’s sharp correction in 2025, one that is likely to continue amidst limited visibility on the pace of public spending and GRE’s support of the equity market.
The banking sector, a key bright spot, is set to face some headwinds in 2026, with the Saudi Central Bank (SAMA) pushing for higher countercyclical buffers.
The report highlighted: “We acknowledge, though, that the market is trading at more favourable valuations, even losing recently its premium to the MSCI EM. The more reasonable valuations have, indeed, encouraged additional inflows into the country, with further room ahead for more foreign buying, as investors are still under-positioned relative to the country’s index weight.”
It added: “Changes to the Foreign Ownership Limit (FOL), which were hinted-to in 2025, would constitute a key upside risk to the market in 2026, if pushed-through, driving more than $10 billion in foreign inflows into the market. In general, we prefer pure infrastructure plays, which are likely to be less affected by the government’s reprioritisation of spending.”
Oil Prices & Regional Countries
EFG Hermes noted that the bearish view on oil prices plays out differently across markets.
Saudi Arabia is the economy that stands to be the most impacted negatively by the bearish view on oil prices.
“We believe the country does have enough space to borrow and plug its financing needs; however, the uncertainty around the growth trajectory is the main challenge facing the market. This is especially the case amidst the limited fiscal space for the gov’t, which aims to contain deficits, as well as its hinting about recalibration and reprioritization of projects,” according to the report.
Conversely, Egypt is seen as an outright beneficiary of low oil prices, which drive one of the core factors in EFG Hermes’ positive view on the country.
The UAE is also set to be less affected and is projected to still print a fiscal surplus at our assumed $65 per barrel oil price, thanks to its diversified economy and efficient spending model.
As for both Kuwait and Qatar, with the latter to a much larger degree, they are also seen less negatively affected by lower oil prices.
