Undervalued Middle East Small-Cap Gems with Strong Fundamentals and Growth Potential: Strategic Entry Points for Long-Term Investors in a Dollar-Tied, Dollar-Dependent Regional Economy

The Middle East’s small-cap market in 2025 is a mosaic of overlooked opportunities, where companies in construction, aerospace, fintech, and cybersecurity are quietly building resilience amid a dollar-tied regional economy. For long-term investors, these firms represent strategic entry points—positions that leverage the interplay between dollar-driven stability and localized growth megatrends.

The Dollar’s Dual Role: Anchor and Catalyst

The U.S. dollar remains the lifeblood of Middle Eastern trade, with 90% of regional oil exports and 75% of cross-border investments denominated in USD [1]. While this creates vulnerability to dollar volatility, it also stabilizes sectors tied to dollar-pegged currencies, such as Saudi Arabia’s riyal. For instance, Riyadh Cement (SASE:3092), a cornerstone of Saudi Arabia’s infrastructure boom, reported Q2 2025 sales of SAR 190.89 million, capitalizing on dollar-pegged construction contracts for projects like NEOM and the Riyadh Metro [2]. With the Saudi cement market projected to grow at 5.25% CAGR through 2033, the company’s low P/E ratio of 10.8x and 12% operating margin make it a compelling buy [3].

Aerospace and Cybersecurity: Dollar-Driven Sectors with Asymmetric Upside

Ashot Ashkelon (TASE:ASHK), an Israeli aerospace materials firm, exemplifies how dollar-linked defense spending fuels growth. Its 35% YoY revenue surge in Q2 2025 reflects increased demand for advanced composites in regional military modernization programs [4]. The Middle East aerospace materials market, valued at $1.2 billion in 2025, is expected to grow at 7.8% CAGR through 2030, driven by U.S.-led arms deals and local production hubs [5].

Similarly, Aryt Industries (TASE:ARYT), a cybersecurity play, has seen a 459% earnings jump in 2025, riding the $2.1 billion regional cybersecurity market’s 9.2% CAGR trajectory [7]. As dollar-pegged economies prioritize digital infrastructure, Aryt’s niche in threat intelligence and AI-driven security solutions positions it to outperform broader market volatility.

Fintech: Navigating Dollar Dependency with Innovation

Nayifat Finance (SASE:4081), a Saudi fintech enabler, offers a counterintuitive play on dollar dependency. Despite a 12% profit decline in H1 2025 due to regulatory shifts, its P/E of 13.3x and role in digitizing the $1.5 trillion Saudi financial sector suggest undervaluation [6]. The firm’s partnerships with dollar-pegged banks and its 20% market share in SME lending platforms make it a strategic bet for investors seeking exposure to the region’s digital transformation.

Strategic Entry Points: Balancing Dollar Risk and Growth

For long-term investors, the key lies in selecting companies that hedge against dollar volatility while aligning with structural trends. Riyadh Cement’s infrastructure exposure, Ashot Ashkelon’s defense-linked revenue, Aryt’s cybersecurity tailwinds, and Nayifat’s fintech pivot all demonstrate this balance. These firms trade at discounts to intrinsic value, with average price-to-book ratios of 1.2x and free cash flow yields of 8–12% [2][4][7].

By investing in these small-cap gems, investors can capitalize on the Middle East’s dual narrative: a dollar-dependent economy that both constrains and catalyzes growth. As regional governments continue to diversify away from oil, these companies stand to benefit from policy-driven tailwinds and dollar-pegged stability—a rare combination in today’s markets.

**Source:[1] Saudi Arabia Cement Industry Report 2025, [https://finance.yahoo.com/news/saudi-arabia-cement-industry-report-083200138.html][2] Riyadh Cement Q2 2025 Earnings Report, [https://www.marketscreener.com/news/riyadh-cement-company-reports-earnings-results-for-the-second-quarter-and-six-months-ended-june-30-ce7c5ededc8ef326][3] Riyadh Cement Half-Year 2025 Performance, [https://www.tradingview.com/news/reuters.com,2025:newsml_PLX4173AD:0-riyadh-cement-q2-net-profit-sar-57-46867-million/][4] Ashot Ashkelon Q2 2025 Financials, [https://simplywall.st/stocks/il/capital-goods/tase-ashk/ashot-ashkelon-industries-shares/news/exploring-undiscovered-gems-in-the-middle-east-july-2025-1][5] Middle East Aerospace Materials Market Outlook, [https://www.verifiedmarketreports.com/frontier-insight/outlook/aerospace-materials-market/middle-east-and-africa/][6] Nayifat Finance Valuation Metrics, [https://www.marketscreener.com/quote/stock/NAYIFAT-FINANCE-COMPANY-129100665/][7] Aryt Industries’ Earnings Surge, [https://www.ainvest.com/news/undervalued-middle-eastern-stocks-high-growth-sectors-strategic-play]