Market Volatility Boosts Appeal of Utilities and Telecom Sectors

Amid a month of sharp market fluctuations, Gulf equity investors have experienced a mix of panic, uncertainty, and confusion. With continued turbulence expected, analysts suggest that focusing on defensive sectors less tied to global economic shifts could be a wise move.

Gulf stock markets plummeted in early April, mirroring declines in the US dollar and oil prices, following President Donald Trump’s implementation of broad tariffs and his reiterated goal to weaken the dollar, the world’s principal reserve currency.

While Dubai’s stock index has managed to regain positive ground for 2025, it remains 3.5% below the 17-year high recorded in February. In Saudi Arabia, the main index fell to its lowest level in 16 months before partially recovering, trimming its year-to-date loss to 2.4%. Other Gulf markets have similarly experienced sharp drops followed by partial recoveries.

“In the current climate, regional investors are likely to lean toward companies with a strong domestic presence to minimize their exposure to global market volatility” said Akber Khan, acting CEO of Al Rayan Investment in Doha.

Utilities and telecom operators focused on local markets fit this profile, although there remains a question mark over how a prolonged downturn in oil prices might affect domestic economic activity and, by extension, overall demand.

Impact of Oil Prices and Dollar Weakness

Crude prices, both WTI and Brent, fell sharply after Trump’s tariff announcement on April 2, and continue to experience volatility despite his temporary pause a week later.

Since mid-January, the dollar has depreciated by approximately 11% against the euro, yen, and Swiss franc, reaching multi-year lows and by 9% against the British pound.

“The speed of the dollar’s decline has been quite disorderly — typically, such a fall would take over a year” commented Rohit Chawdhry, chief investment officer at Dubai-based Cross Alpha and a veteran of two decades in Gulf financial markets. “While temporary rallies are possible, the broader trend is downward“.

A weaker dollar will make imports more expensive in Gulf countries where currencies are pegged to the greenback, likely fueling inflation. As a result, consumers in the region may cut back on non-essential spending, including categories like clothing, electronics, leisure, and travel. This could hurt companies operating in those sectors.

Shift Toward Defensive Stocks

“As inflation expectations rise, investors will likely favor companies that enjoy monopoly or near-monopoly positions, with business models that can pass on cost increases to consumers” Chawdhry added.
Such companies include utilities and operators of toll roads and parking facilities.

Firms with steady cash flows, attractive dividend yields, and strong stock liquidity are expected to draw investor interest during uncertain times.

Businesses engaged in long-term contracts, such as gas pipeline operators and oil drilling companies, which typically secure contracts spanning five to eight years, may also provide a buffer against market instability.

Chawdhry emphasized that investors need to consider multiple factors, including the impact of low oil prices, rising inflation, slower economic growth, and companies’ exposure to international markets. Firms with a largely domestic focus and minimal dependence on imports or exports are likely to be favored.

Oil Prices and the Dollar: A Complex Relationship

Traditionally, oil prices and the US dollar have had an inverse relationship, where a weaker dollar pushes oil prices higher. However, with a global economic slowdown looming, oil prices may continue to fall despite dollar weakness. This could pose further challenges for the Gulf’s petrochemical sector, already suffering from historically low margins due to oversupply and tepid demand.

Broader Economic Implications

Although a weaker dollar could benefit Gulf tourism, considered an export by making the region more attractive to international visitors, it is unlikely to significantly boost the Gulf’s primary exports, which are heavily concentrated in hydrocarbons.

“Buyers of oil, gas and petrochemicals tend to be relatively insensitive to price changes” noted Khan. “However, importers will benefit from lower costs”.
Additionally, a depreciating dollar makes Gulf assets, including real estate and financial investments, cheaper for non-dollar investors.
“In theory, a weaker dollar should encourage capital inflows into the region, but investors will weigh multiple factors beyond currency valuations alone” Khan concluded.