Gulf capital emerges as shock absorber for AI valuations

15/01/2026 01:13 AST

With global equity valuations stretched by the artificial intelligence boom, Gulf sovereign and institutional investors are increasingly acting as the market's shock absorbers, sustaining AI-driven valuations and private deal activity through long-term, patient capital, according to Standard Chartered's Global Market Outlook 2026.

The bank's Wealth Solutions Chief Investment Office argues that while investor unease over a potential AI-led equity bubble is understandable, today's market conditions differ sharply from the leverage-fuelled excesses that preceded the 2008 global financial crisis. Instead, the closer historical parallel is the late-1990s dot-com cycle, albeit with two decisive differences: the sheer scale of capital being deployed into AI infrastructure, and the fact that many of the largest investors and developers are already profitable, cash-generative institutions.

What sets the current cycle apart, the report stresses, is the increasingly central role played by Gulf investors, particularly sovereign wealth funds and state-linked institutions from the UAE, Saudi Arabia and Qatar. Rather than chasing short-term returns, these investors are underwriting the capital-intensive backbone of the AI ecosystem, from hyperscale data centres and advanced semiconductors to cloud platforms and energy-hungry compute infrastructure. This steady flow of long-dated capital has helped cushion private valuations even as global monetary conditions remain restrictive.

"While there are important distinctions between the tech bubble of the late 1990s and today's AI-led rally, elevated valuations reinforce the importance of diversification," said Ayesha Abbas, managing director and head of affluent and wealth solutions for Europe, the Middle East and Africa at Standard Chartered. She noted that alternative assets now play a dual role for investors, offering structural benefits through improved risk-adjusted returns, while also providing cyclical protection in an environment marked by valuation dispersion and geopolitical uncertainty.

This investment mindset, she added, is already deeply embedded among Gulf sovereign wealth funds, which have steadily expanded allocations to private equity, private credit and strategic technology platforms. "Gulf sovereign wealth funds are emerging as a defining force in the next phase of artificial intelligence investment, providing the long-term capital required to build infrastructure at scale," Abbas said, highlighting their willingness to accept longer payback periods in exchange for strategic relevance and durable cash flows.

The report expects risky assets to continue performing well through 2026 as liquidity gradually improves and earnings growth catches up with valuations, particularly in the US and Asia excluding Japan. However, the CIO cautions that gains are likely to be increasingly uneven, reinforcing the case for diversification across regions, sectors and asset classes. In fixed income, emerging market bonds are seen outperforming developed market peers, supported by stronger fundamentals, attractive yields and a reduced dependence on a purely US Federal Reserve-centric outlook.

Gold is also expected to extend its gains, underpinned by central bank demand, geopolitical hedging and diversification needs, while alternative currencies such as the Japanese yen and offshore renminbi remain important portfolio stabilisers amid policy and growth uncertainty.

Despite its constructive outlook, Standard Chartered flags several risks that could disrupt markets. A sharp disappointment in AI earnings or adoption relative to elevated expectations could trigger a reassessment of equity valuations. A significant credit event that raises fears of systemic, rather than isolated, default risk would weigh on both public and private markets. Markets could also be unsettled by data that limits the ability of the Federal Reserve to cut rates, or by an unexpectedly hawkish Bank of Japan that pushes Japanese yields and the yen sharply higher.

The report concludes that the Gulf's expanding role as a strategic allocator of capital, rather than a speculative participant, is reshaping the global investment landscape, making it a pivotal anchor for AI-driven growth and private market resilience in the years ahead.

Khaleej Times