Ambitious economic development plans, the growth of private credit markets and sovereign wealth funds are putting the Middle East’s capital markets on the global investment map, Moody’s Ratings says.
Saudi Arabia, for example, has a AA3 stable rating from Moody’s, indicating that it has a strong economic position and low risk of default. Its Vision 2030 development plan, which aims to diversify the economy beyond oil, “is at the forefront of transforming the economic landscape” of the Gulf Cooperation Council (GCC) region, a report said.
The ratings agency expects private credit markets to grow thanks to a rising investor appetite for alternatives, while the “sizable funding needs [that] economic transformation entails” will also encourage growth in alternatives, including regional and global private credit funds, direct lending and structured finance strategies.
Moody’s noted that a number of sovereign wealth funds in the region have been showing interest in private credit. Mubadala Investment Co., the $302 billion Abu Dhabi-based fund, has partnered with U.S.-based alternative managers such as Apollo Global Management, Ares Management and Blackstone to deploy capital into global private credit opportunities.
Last year, BlackRock also said it would establish a presence in Saudi Arabia, with the Riyadh-based Public Investment Fund backing an investment platform for opportunities, including in private markets. In addition, a number of hedge funds and other managers have opened offices in the region.
More interest from institutional investors will also come with continued reforms to protect creditor rights, while the offshore free zones — Abu Dhabi Global Market and Dubai International Financial Center — “operate under a common-law framework with dedicated insolvency regulations as well as independent courts and regulators,” which Moody’s said offers comfort to creditors in part due to familiarity with English law.
There is also potential for specialized debt solutions, such as special-situations financing and venture debt, to be developed in the region thanks to more private credit funds being raised and deployed, a growing base of sophisticated asset managers and an accommodating regulatory framework, Moody’s said.
Sovereign wealth funds also remain pivotal in developing the region’s capital markets, providing liquidity, enhancing market depth and anchoring foreign investor confidence.
The roughly $5 trillion in assets spread across GCC-based wealth funds “have become dominant in the global investment market, capitalizing on market performance to grow organically but also on accumulated excess government reserves and fundraising to expand inorganically,” Moody’s said. Sovereign wealth funds in the GCC invested $55 billion across 126 deals in the nine months that ended Sept. 30, 2024, Moody’s said, citing research and SWF data provider Global SWF information. That represented 40% of global deals.
However, Moody’s noted that there are hurdles, despite the strong growth potential, citing regulatory and legal complexities and limited track record in some asset classes. “Also, the region’s dependence on hydrocarbon exports and exposure to regional geopolitical risks can weigh on market stability and investor sentiment,” it added.