MENA Q4 2025 Manager Letter

MENA equity markets ended the fourth quarter of 2025 with a return of -4.3%, as measured by the S&P Pan Arab Composite (TR) Net Index, compared with a 4.3% gain for the MSCI Emerging Markets Index over the same period. For the year-to-date period ending December 31, MENA markets returned 4.1%, versus 30.6% for emerging markets (EM).

The region’s long US dollar and long oil exposure, combined with its under-representation in the AI theme, resulted in meaningful underperformance relative to MSCI EM Index in 2025. As regional specialists, we are not required to make allocation trade-offs between MENA and other EMs; however, we acknowledge that the bar for regional outperformance will remain high. The outlook for 2026 suggests a continuation of a weaker US dollar, lower oil prices and sustained capital flows toward AI-linked assets.

From our vantage point, we see a healthy opportunity set developing for the strategy as we enter 2026, driven by the following factors:

• Following last year’s underperformance, MENA equity markets lost valuation premium relative to EM, and expectations heading into 2026 have been reset lower. As a result, valuation risk is limited, and we are seeing opportunities to select high-quality stocks that were caught up in broad market corrections – opportunities that have been scarce in recent years.
• The region’s socioeconomic reform agenda remains one of the strongest structural investment themes across EM. These reforms should support non-linear profit pool growth in select industries, including financial services, technology, energy, infrastructure and real estate.
• The recalibration of ambitious giga-projects in Saudi Arabia signals a more pragmatic approach to capital spending and resource allocation. This shift enhances policy credibility, which we view as essential for building investor confidence and ensuring sustainable public finances.
• Capital market relevance continues to be a priority for regional governments. We believe this should translate into a broadly supportive market environment, characterized by investor-friendly policies and improved market investability.
• Return dispersion across MENA markets – a theme we have discussed previously – remains pronounced. In 2025, the performance gap between Kuwait (the best-performing market) and Saudi Arabia (the weakest) reached a striking 34%. We continue to see sufficient idiosyncratic country-level drivers and market dynamics for dispersion to persist in 2026 and beyond. In addition, smaller markets such as Egypt, Oman and Morocco are experiencing a resurgence, positioning the strategy well to capitalize on these developments.

Entering 2026, the portfolio’s largest country overweights are Qatar and Egypt, where we favour the combination of attractive valuations, low investor positioning and visible growth. In Egypt, growth is already evident, while in Qatar we expect momentum to build later in the year as the country approaches its LNG windfall in 2027.

Conversely, we are underweight Kuwait and the UAE, having reduced exposure to financials in both markets due to valuation considerations and, in Kuwait’s case, lower confidence in policy support. In the UAE, we remain committed to our view that late-cycle opportunities in infrastructure and energy will outperform more cyclical segments such as financials and real estate, while acknowledging that this positioning did not perform as expected in 2025. In Saudi Arabia, the strategy remains modestly underweight; however, we retain strong bottom-up conviction in select opportunities across financial services, insurance and industrials.

We look forward to updating you on the strategy in our next letter.