Gulf consolidates stature as sovereign wealth hub, lags on per capita holdings

Most of this sovereign wealth is concentrated in sovereign wealth funds attached to states known as the “Oil Five” — the United Arab Emirates' (UAE) ADIA, Mubadala, ADQ, Saudi Arabia’s Public Investment Fund (PIF) and Qatar’s QIA — in reference to their having used fossil fuel income to power their economic growth, strengthening the region’s stature as a wealth hub. Last year, the PIF ranked as the highest-spending sovereign wealth fund in the world, deploying $31.6 billion across 49 deals. The Saudi Arabian fund made up 25% of global state-owned investments in 2023.

The Gulf's status as a wealth hub was on display again this past week when Spinneys, the high-end supermarket chain that operates premium grocery retail stores in the UAE and Oman began trading on Dubai’s stock market. Its initial public offering (IPO) attracted $19 billion in orders for the sale of $375 million worth of shares as investors hunt for rare listings of the Gulf’s private sector companies.

According to the UAE’s news agency, WAM, the 25% stake sale attracted the highest level of oversubscription for a nongovernment-related IPO on the stock market in the last 10 years. Spinneys’ CEO, Sunil Kumar, said the listing is an opportunity for investors to gain exposure to a company that is capitalizing on the region’s “very positive macroeconomic tailwinds."

The global finance industry is doubling down on its footprint in the Gulf to seek proximity to trillion of dollars of sovereign wealth stashed in the region. The Dubai International Financial Centre (DIFC), Dubai's financial free zone, expects 2024 to be its “busiest year ever” as more firms seek to move part of their operations over to the finance hub. The DIFC is home to 600 financial services firms, including hedge funds, commodity traders and asset managers. 

The DIFC’s regulator issued 117 new financial services licenses in 2023 and has recorded a 50% increase in license issuing so far in 2024 compared to last year, as the UAE gains from its removal in February 2024 from the “grey list” of the Financial Action Task Force (FATF), a global financial watchdog. Grey-listed countries are subject to increased FATF monitoring. 

Fueled by domestic capital 

To boost their allure as emerging wealth hubs, Gulf countries can count on existing pools of domestic capital. This past week, the World’s Wealthiest Cities Report 2024 found that the number of millionaires in Dubai increased by nearly 80% between 2013 and 2023. The Emirati city is the Gulf’s wealthiest and home to 72,500 millionaires and 15 billionaires.

Although Dubai leads the pack, the report describes some other Gulf cities — including Abu Dhabi and Riyadh, which rank first and fourth in the report’s list of cities to watch, respectively — as “ascending wealth magnets of tomorrow.” 

Still, the GCC region’s wealth profile is far shy of leading global wealth hubs. Credit Suisse puts the United States' total household wealth at $151 trillion, $104 trillion in Europe and $84 trillion in China. Per capita household wealth in the GCC still lags behind North America and Europe.

The real estate sector has long played a pivotal role in storing the Gulf’s household wealth while attracting international capital, especially in Dubai and Abu Dhabi where authorities have encouraged foreign ownership of properties in numerous areas where it is allowed — known as freehold.

Dubai’s appeal to foreign buyers was on full display following Russia’s invasion of Ukraine as Russians relocated to the city en masse. UAE authorities have not disclosed how many Russians have relocated to the country since 2022, but UAE-based brokerage Betterhomes found that Russians were the biggest international buyers of Dubai real estate in 2022. Russians were still the top nonresident buyers in the first quarter of 2023 before dropping to the third rank by the end of the year.

The Russian momentum in 2022 and early 2023 added to an already strong demand for properties and turned the city into one of the world’s hottest real estate markets. Dubai recorded 118,993 residential transactions in 2023, up 29.6% from 2022.

The Gulf countries' next strategy to position the region as a rising global wealth hub is to open up their economies and prime assets to foreign investors and all eyes are on the much-awaited IPO of Etihad Airways. The carrier recorded a 41% year-on-year rise in passenger numbers in the first quarter of 2024, and it could become the first Gulf airline to float shares if its owner, the UAE’s ADQ, decides to list it. An IPO of Etihad Airways would attract global attention as Gulf airlines' profits and dominance over the Asia-Europe route have long been out of reach to international investors.

The Gulf’s IPO frenzy is not limited to the UAE. In fact, the Saudi exchange, known as Tadawul, is the leading destination for listings in the region. Of the 138 IPOs of GCC companies that took place between 2018 and 2023, almost 70% went to the Tadawul. 

Buoyant stock market activities have attracted foreign inflows in recent years. Saudi Arabia planned to reach 25% of foreign ownership by 2020. It is short of its goal, but foreign ownership has risen nonetheless. It stood at 9.8% in 2019 and increased to 11.6% by May 2024.