Arab Financial Markets Show Mixed Performance Amid Global Uncertainty

Arab financial markets experienced a mixed performance in February, influenced by global economic uncertainties, geopolitical tensions, and fluctuating investor sentiment, according to the latest report from the Arab Monetary Fund (AMF).

The AMF’s monthly bulletin revealed that the composite index for Arab stock exchanges recorded a slight decline of 0.06 percent by the end of February. The region had started 2025 on a strong note, with a 0.97 percent increase in the composite index in January, driven by improved investor sentiment and an international market rebound. However, this momentum weakened in February, with losses recorded in seven exchanges, compared to only three in the previous month.

Despite the short-term volatility, investors remain cautiously optimistic about Arab markets. Bahrain led the best-performing exchanges with a 4.3 percent increase, followed by Kuwait and Tunisia. Conversely, Saudi Arabia and Palestine saw the most significant declines, losing 2.45 percent and 2.37 percent, respectively. Morocco’s Casablanca Stock Exchange and Egypt’s EGX30 also posted gains, while Qatar, Muscat, Amman, and Iraq experienced declines. Abu Dhabi’s index recorded a slight dip of 0.11 percent, reflecting mixed investor sentiment.

The report provided an in-depth analysis of market performance, trading volumes, sectoral trends, and macroeconomic influences on Arab financial markets. Market liquidity took a hit, with trading volumes plummeting by 26.73 percent across exchanges. The overall market capitalization of Arab stock exchanges shrank by 1.53 percent, losing approximately $67.56 billion by the end of February. Saudi Arabia faced the most significant setback, contributing to a 1.66 percent decline in total market capitalization, while Bahrain posted the highest gains at 4.27 percent.

The decrease in trading volume was widespread, affecting eight exchanges. The value of traded shares dropped by 8.64 percent compared to January. However, Bahrain and Muscat saw substantial increases in trading value, surging by 6,888.38 percent and 211.39 percent, respectively. Meanwhile, Egypt and Saudi Arabia saw significant declines of 29.07 percent and 19.73 percent, with Palestine experiencing the steepest drop at 69.15 percent.

Global Pressures Impact Market Performance

The underperformance of some Arab exchanges mirrored global trends, as major international indices such as the Dow Jones, Nasdaq, and Japan’s Nikkei recorded losses. European markets had mixed results, with the CAC 40 and FTSE 100 posting slight gains, while the MSCI Emerging Markets Index for Latin America and Asia declined.

Financial markets worldwide experienced volatility due to multiple factors, including rising U.S. tariffs, ongoing supply chain disruptions, and increasing trade tensions with China, Canada, and Mexico. The ongoing geopolitical conflict between Russia and Ukraine further dampened investor sentiment, while concerns over slowing global economic growth and inflationary pressures added to market instability.

Sectoral Performance and Economic Policies

Sector-wise, financials, consumer services, and telecommunications drove gains in Kuwait, Dubai, and Egypt. The real estate and industrial sectors also performed well, boosting select exchanges. On the downside, energy and technology stocks struggled in Saudi Arabia and Qatar due to persistent oil price volatility and investor uncertainty surrounding global supply concerns.

Oil prices remained under pressure, negatively impacting energy-linked equities in several Arab markets. Additionally, commodity markets experienced sharp fluctuations, influencing investor appetite for riskier assets.

Arab central banks adjusted their monetary policies in response to economic conditions. Saudi Arabia, the UAE, and Qatar implemented minor interest rate cuts to stimulate growth, while Egypt raised its rate to curb inflation and stabilize its currency. Globally, the U.S. Federal Reserve maintained a cautious stance, Japan adjusted rates upward slightly, and China, the Eurozone, and India enacted minor cuts to counter economic slowdowns. Meanwhile, Russia increased rates to combat inflation, whereas Argentina and Turkiye made substantial cuts, reducing their rates to 29 percent and 45 percent, respectively.

Cautious Optimism Amid Economic Risks

Despite ongoing challenges, the AMF report suggests that easing inflationary pressures and a potential stabilization of oil prices could create a more favorable market environment in the coming months. However, external risks—including shifts in U.S. monetary policy, potential trade restrictions, and geopolitical instability—will continue to influence market movements.

Market participants are closely monitoring fiscal policies and government spending initiatives in key Arab economies, as these factors will shape investment flows and stock market performance. The trend of central banks adjusting monetary policies to counter inflation and economic slowdowns is expected to remain a key driver of market sentiment.

While the real estate and financial sectors continue to attract investors, the energy sector remains vulnerable to external pressures, particularly concerns over oil supply and price fluctuations, according to the report.