Advantage UAE and Gulf economies in changed investment environment?

We recently released our ‘2025 Global Investment Outlook’ and wanted to share our key views.

Its title is ‘Winds of Change’, as we see 2025 as a pivotal year for the investment landscape. In a word, markets this year should be driven by the long-term implications of emerging changes, that start with new leaders, new policies, and new technological developments.

Remember 2024 – which we had called ‘The Year of Answers’?.

Markets were all about urgent questions about the current state of the world: growth, inflation, central banks, and of course, elections. As a result, every single data point, headline, word from a central banker or new electoral poll could instantly change the narrative and impact markets.

This explains the high level of volatility, and probably also the outperformance of gold, the ‘anti-fragile’ asset by excellence. This also explains why it was such a good year for investments overall: markets received their answers, and they enjoyed it.

Now let’s compare with the first weeks of 2025.

Potential trade tariffs are announced on an almost daily basis, US inflation surprises to the upside and the Fed suggests a long pause before cutting rates. And yet, neither the dollar nor US Treasury yields rise: they are both slightly down in 2025.

The corporate earnings season was brilliant in America, while Q4 GDP growth was tepid in Europe and leading indicators still haven’t picked up in China. And yet, stock markets from China, Europe, the UK and the GCC all outperform the US.

2025 is simply not about 2025, in the same way that 2000, for global markets, was not about 2000, but about the long-term consequences of the internet – the ‘New Economy’. Similarly, 2005 was not about the present, but about a newly globalized economy and its ‘super cycle’.

The winds of change of 2025 are not all about technology or all about international relations. They combine both, at the same time: new policies, and AI.

The America First program, energetically kicked-off by the new US administration, has long-term implications. Not only for the US, but for the world. We highlight three important characteristics.

First, it’s competition over cooperation. The US reduces its involvement in international organizations, considers universal reciprocal tariffs and definitely favors bilateral negotiations over multilateral forums.

Under the same logic, military interventionism is not a priority anymore. How will the rest of the world respond? Resist, with outright competition? Individually, or through recomposed alliances, for example around the BRICS+?

Will any country or group of countries try to fill the void left by the US in terms of military presence and soft power?

The second characteristic is around the very American value of individual freedom. From an investors’ point of view, it’s about less regulations, lower taxes, and a smaller government. Will other regulations evolve to support their own businesses? Can other countries afford lower taxes?

Finally, the possibility of a material reduction in US government spending is a potential massive game-changer. It would initially be recessionary impact, which requires a lot of political courage as it will face fierce opposition and as midterm elections are in 2026.

But it would deeply reconfigure the US economy. Again, it’s not just about America. Assuming that new standards of government spending are from the world’s largest economy, to what extent will bond vigilantes and rating agencies demand the same from others? Will they align? Can they?

Or will they go the monetization/quantitative easing way? With what consequences on currencies, inflation?

The third element we would highlight from America First policies is the willingness to reduce immigration, especially the less qualified.

Long-term growth is about two parameters: labor force and productivity. The US clearly focuses on the latter. It implies capital and technological improvement. President Trump didn’t wait to strongly suggest more investments from abroad. With regard to technology, this is the transition to the second large source of wind: AI.

The need for productivity is not just an American topic. Every country with ageing population, and no willingness for, or ability to attract, immigration, needs it. From Europe to Japan or China. And it’s not ‘a nice to have’: it is a crucial component of growth, and growth is existentially needed in a context of high levels and service cost of public debt.

A key take-away is that the race for AI, our only hope for a dramatic productivity boost, is here to stay. It will be massive, competitive, and ruthless.

These are the key reasons why 2025 will look into the future, and why markets do not overreact to short-term data for now.

Of course, there is an inflationary risk from more tariffs and less immigration in the short-term. But what is the short-term, compared to the possibility of AI boosting GDP per hour worked, or to the financial revolution from a hypothetical massive reduction of public deficits?

Markets may be a bit complacent for now, especially by assuming that tariffs are just a negotiation tool, that US growth will continue to be exceptional, and that the genie of inflation is forever back in the bottle.

We expect some significant episodes of volatility ahead. It’s good to remember that it’s been only a month since the new administration took office. Just the first month of a 4-year presidential mandate.

We started the year fully invested, but are ready to adapt swiftly as markets could, as they often do, over-react to short-term surprises and sometimes forget the bigger picture. Under this long-term framework of analysis, we also can’t help noting that one large region around the Indian Ocean has all the best assets in hand: a growing working-age population, the ability to attract talents, ample pools of capital, access to technology, and a nuanced approach to international relations.

We live in its very heart, with the Gulf, and the UAE in particular, as its financial and diplomatic powerhouse.