Gulf Markets Weather Trade War Fears, but Risks Linger

Gulf markets have shown remarkable resilience in the face of escalating trade disputes and geopolitical tensions, with several indices posting gains despite the specter of a widening Middle East conflict. However, investors should remain vigilant, as certain sectors within these markets remain vulnerable to trade war fears.



Dubai's index has risen by 10.5 percent in 2024, while other Gulf markets, such as Saudi Arabia, Kuwait, and Qatar, have also gained between 1.1 percent and 3.5 percent over the past month (Alamy via Reuters, 2025-03-05). This performance can be attributed to several factors, including the diversification of Gulf markets, increased investor sophistication, falling interest rates, and the geopolitical risk premium built into these markets.

However, not all sectors within Gulf markets are equally resilient. Sectors heavily reliant on global trade and exports, such as manufacturing, automotive, and energy, face significant risks from trade war fears and protectionist policies. For instance, Gulf countries export about 60 percent of their production to global markets, making them particularly vulnerable to customs duties and trade barriers (World Bank).

To mitigate risks associated with these sectors, investors can consider diversifying their portfolios by allocating funds to sectors less affected by trade wars, such as healthcare, technology, or renewable energy. Additionally, regional economic integration and a shift towards value-added exports can help Arab economies reduce their dependence on foreign markets and increase the flexibility of national economic systems (Abu Dhabi, Alittihad Newspaper).

While Gulf markets have shown strong fundamentals and resilience in the face of global market fluctuations, trade war fears and protectionist policies could potentially impact their earnings growth and valuations. Policymakers in the region should reassess national and foreign strategies to ensure continued economic growth in this turbulent trade climate.

In conclusion, Gulf markets have demonstrated remarkable resilience in the face of trade war fears, but investors must remain vigilant and consider the risks posed to vulnerable sectors within these markets. By diversifying portfolios and promoting regional economic integration, investors and policymakers can help mitigate these risks and ensure the continued growth of Gulf markets.