Capital flows: Asia and the Middle East take center stage
A look at how capital flows are shifting across Asia and the Middle East, and what it means for investors seeking long-term growth and diversification.
Duration: 7 Mins
Date: Nov 06, 2025
While some economies still face volatility, many – especially in Asia – have made significant strides in development, entrepreneurship, and market maturity. The dominance of state-controlled companies has started giving way to a broader, more dynamic corporate landscape, driven by local innovation and wealth creation. This evolution has sparked a major shift in capital flows. Domestic investors, from governments to individuals, are playing an increasingly central role in shaping EM.
The rise of local investor
From sovereign wealth funds to retail pension plans, local capital is on the rise:
- In China, retail investors dominate, accounting for around 90% of daily trading volumes. At the same time foreign ownership remains below 10%, making it one of the most domestically driven markets in the world.1
- In India, pension reforms have unlocked a wave of systematic investment plans, with millions of individuals contributing monthly, adding around $2.8 billion to the market each month.2
For investors, this matters. Domestic capital tends to be stickier, less prone to sudden outflows and more aligned with long-term growth. It also supports market resilience and depth, especially in times of global volatility.
In the Middle East, sovereign wealth funds remain the primary drivers of domestic investment. While international allocations haven’t shifted dramatically, there’s a clear strategic pivot toward local economic development. Infrastructure is central to this transformation, with countries like Saudi Arabia and the United Arab Emirates investing heavily to move beyond oil and grow their domestic industrial base.
The emerging Middle East
From capital source to investment destination
Once seen purely as a source of capital, the Middle East is now emerging as a compelling investment destination. Asset managers are deploying significantly more equity and fixed income capital into the region – in some cases, 15 times more than five years ago by our numbers. The inclusion of Saudi Arabia’s Tadawul in the MSCI EM Index in 2019 triggered a wave of passive and active inflows, while regulatory reforms have made markets more accessible and investable.
Saudi Arabia has hundreds of billions worth of infrastructure projects planned or underway, with the sector projected to grow from $36 billion in 2024 to $44.8 billion by 2029. Transport infrastructure is a standout, expected to reach $154 billion by 2029, driven by mega-projects like Neom megacity project, and the Red Sea development.3,4
The United Arab Emirates is also scaling up, with $23 billion in infrastructure investment focused on smart cities, renewable energy, and transport.5 Abu Dhabi’s Ghadan 21 program alone channels $13.6 billion into infrastructure, education and tech.6 Sovereign wealth funds like the Abu Dhabi Investment Authority, Mubadala Investment Company, and the Public Investment Fund of Saudi Arabia, one of the world's largest sovereign wealth funds, are backing these efforts.
For investors, we believe this shift opens up multiple avenues:
- Listed equities. Regional banks, construction firms, and logistics players stand to benefit from infrastructure-led growth.
- Private markets. infrastructure joint ventures, real estate investment trusts, and sovereign-backed funds offer exposure to long-duration assets with yield potential.
- Fixed income. Gulf Cooperation Council bond markets are expanding, with sovereigns and corporates issuing debt to fund diversification.
Financial hubs, such as Abu Dhabi Global Market and Dubai International Financial Centre, are attracting global hedge funds and investment teams – not just for distribution but for core decision making. The region’s transformation is visible – from abandoned buildings post-2008 to luxury villas and thriving business districts. With infrastructure investment and policy reform accelerating, the Middle East is fast becoming a key pillar of EM growth.
Asia’s evolution
Liquidity, reform, and retail power
Asia’s capital markets are evolving rapidly, driven by liquidity initiatives, regulatory reform and changing retail behavior. In North Asia, countries like China and South Korea are reforming state-owned enterprises and encouraging transparency, dividends and share buybacks. Japan’s delisting and conglomerate break-up program has inspired similar moves across the region.
Dividend reform is another key driver. In 2025, Chinese companies are expected to pay out a record ¥3 trillion ($419 billion) in dividends – up 10% from last year.7 The dividend yield on Chinese stocks has climbed to 3% earlier this year – the highest in nearly a decade – with high-dividend stocks outperforming peers by 15%.8 State-owned enterprises and tech firms like a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology and a leading manufacturer of electric vehicles and a pioneer in technological innovation in the automotive industry are at the forefront, reflecting a broader shift toward shareholder returns. For yield-focused investors, we believe this presents a growing pool of income-generating assets.
In South and Southeast Asia, liquidity remains a challenge. Governments are responding with targeted interventions. These include Singapore’s S$5 billion Equity Market Development Programme, and India’s efforts to reduce administrative barriers for foreign investors.9,10 Retail behavior is also shifting, though slowly. In Singapore, for example, investors still treat equities like property – focusing on yield and monthly income – but education efforts are underway to promote total-return thinking.
Final thoughts
Capital flows shape markets. As emerging economies evolve, so too does the source and direction of investment. Understanding these shifts is vital to capturing the next wave of growth. With decades of EM experience and deep on-the-ground expertise, we’re well-positioned to help investors turn these trends into opportunities.
Endnotes
1 "China’s stock market has been on a roll — is it a boom or a bubble?" CNBC, September 2025. https://www.cnbc.com/2025/09/29/china-market-rally-boom-bubble-tech-ai.html.
2 "Monthly Systematic Investment Plan (SIP) inflows may touch Rs. 40,000 crore (US$ 4.65 billion) in 18-24 months: Union Asset Management Company CEO." Indian Economy News, April 2025. https://ibef.org/news/monthly-systematic-investment-plan-sip-inflows-may-touch-rs-40-000-crore-us-4-65-billion-in-18-24-months-union-asset-management-company-ceo.
3 "Infrastructure Sector 2025 White Paper." Saudi British Joint Business Council, February 2025. https://www.sbjbc.org/infrastructure-sector-2025-white-paper/.
4 Neom is an arcology and planned city being built in the Tabuk Province of Saudi Arabia.
5 "Investing in UAE Infrastructure Projects." UAEpedia.com, December 2024. https://uaepedia.net/infrastructure-investment-uae/.
6 "Abu Dhabi’s Vision 2030." The UAE’s Infrastructure Revolution: Projects and Spending Trends. Ventures Onsite, February 2025. https://www.venturesonsite.com/content-hub/the-uaes-infrastructure-revolution-projects-and-spending-trends.
7 "Chinese stocks may pay a record US$419 billion in 2025 dividends in bonanza for investors." South China Morning Post, July 2025. https://www.scmp.com/business/article/3317205/listed-chinese-companies-shell-out-us419-billion-dividends-year-goldman-sachs.
8 "Chinese companies don’t know where to put their cash — and it’s sparking a record rise in dividend payouts." CNBC, February 2025. https://www.cnbc.com/2025/02/11/chinese-companies-could-see-another-year-of-record-dividend-payouts.html.
9 The S$5 billion Equity Market Development Programme is a significant initiative by the Monetary Authority of Singapore aimed at revitalizing the local equity market that was launched in February 2025.
10 "India regulators plan quicker entry processes for foreign investors, sources say." Reuters, September 2025. https://www.reuters.com/sustainability/boards-policy-regulation/india-regulators-plan-quicker-entry-processes-foreign-investors-sources-say-2025-09-23/.
Important information
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).
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