Shariah Stocks Turn UAE Markets into the Year’s Hottest Trade

-- Josh Gilbert, Market Analyst at eToro

The United Arab Emirates continues to demonstrate its position as a global outperformer in equity markets, with sustained returns that outstrip most international benchmarks. The Dubai Financial Market General Index closed 2024 with a gain exceeding 27% and has already advanced 18% year-to-date in 2025. This strength is not confined to one sector but is broad-based, encompassing financial services, real estate, and newly listed infrastructure companies. Within this rally, Shariah-compliant stocks have emerged as structural leaders, benefiting from a unique combination of growth momentum and ethical investment appeal.

Structural Tailwinds for Shariah-Compliant Investments

Global investor demand for Shariah-compliant assets has moved beyond a niche allocation to become a mainstream investment theme. In the UAE, this is reinforced by strong corporate governance frameworks and stable dividend policies that align with Islamic investment principles. Stocks such as Salik, Dubai’s exclusive toll-gate operator, have returned approximately 80% including dividends, in the past 12 months, underpinned by predictable cash flows and monopoly-like market positioning. Parkin, the recently listed public parking operator, has delivered over 200% total return since its IPO, reflecting market appetite for defensive infrastructure plays with inflation-resistant revenue streams.

Financial Services: Earnings Expansion and Digital Leverage

The financial sector remains a central pillar of UAE equity strength, with Shariah-compliant banks and financiers outperforming their conventional peers on both earnings growth and share price performance. Abu Dhabi Islamic Bank, the UAE’s second-largest Islamic lender, has appreciated nearly 98% over the past year, including dividends, driven by higher net interest margins, cost discipline, and a rapid acceleration in digital banking adoption. Amlak Finance, a specialist in Islamic home financing, has doubled in value, capitalizing on Dubai’s sustained real estate demand and the structural under-penetration of Islamic mortgage products in the market.

Real Estate and Corporate Restructuring as Catalysts

In the property sector, Union Properties has become a notable turnaround story. Year-to-date gains exceeding 100% have been supported by a successful restructuring process, improved capital efficiency, and participation in a broader real estate upcycle. Valuations in the sector remain supported by strong rental yields, robust off-plan sales, and a pipeline of infrastructure-led development, all of which contribute to investor confidence in the asset class.

Macro Fundamentals Reinforce Market Sustainability

UAE equity momentum is anchored in macroeconomic resilience. Real GDP growth is projected at 4.4% for 2025 and 5.4% for 2026, underpinned by a diversified economic base, fiscal surpluses, and ongoing investment in infrastructure. The IPO pipeline remains active, with transactions such as Parkin expanding market depth and improving liquidity. The market’s ability to attract long-term institutional flows is further strengthened by its integration into global indices and continued progress on corporate governance enhancements.

Expanding Islamic Finance Footprint in Capital Markets

Both the DFM and ADX now maintain a significant proportion of Shariah-screened equities, which account for a large share of total market capitalization. The UAE’s role as a global hub for Islamic finance is reinforced by policy initiatives, regional capital flows, and the increasing inclusion of Shariah-compliant securities in emerging market and frontier market investment strategies. This growing universe of investable Shariah assets is providing investors with a diversified range of sector exposures while maintaining compliance with ethical mandates.

Outlook: Sustained Performance with Selective Risks

The medium-term outlook for UAE equities remains constructive, supported by strong earnings visibility, stable dividend yields, and ongoing market reforms. However, investor selectivity will become increasingly important as valuations in certain defensive sectors approach historical peaks. Key risk factors include global interest rate volatility, potential shifts in oil market dynamics, and external macroeconomic shocks. Nevertheless, the combination of superior returns, structural reform, and the ethical appeal of Shariah-compliant investing positions UAE equities, and particularly their Islamic finance segment, as a continued destination for both regional and global capital allocation.