Permission Without Participation: Shorting in the Middle East

The Vision Beyond Oil

For decades, the Middle East sold the world energy. Now it's selling vision. Trillions in oil revenue are being rerouted into a campaign of financial reinvention: stock exchanges, sovereign wealth funds, and privatizations designed to turn places like Riyadh, Dubai, and Doha into global investment hubs. The transformation fits a broader political and economic script: diversify away from oil, attract foreign capital, and prove that resource wealth can be converted into modern financial power. Markets that once served as instruments of fiscal policy are now being recast as symbols of national ambition. But for all the new exchanges, regulatory reforms, and investment vehicles, the region's financial evolution remains a managed experiment, rapid and deliberate, tightly supervised from the top down.

The Rules of a Managed Market

Yet the rules of this new financial order don't mirror those of the West. In the United States, market discipline rests on disclosure, dissent, and a belief that transparency, even when uncomfortable, creates efficiency. In much of the Middle East, markets are instruments of statecraft before they are arenas of price discovery. Exchanges are open to foreign capital but anchored by domestic control: sovereign wealth funds, royal family conglomerates, and state-owned enterprises dominate both ownership and liquidity. Regulatory frameworks are modern in form, complete with market authorities, listing requirements, and risk metrics, but selective in function. Policy goals can supersede market logic, and intervention remains an accepted part of stability management. The result is a kind of managed capitalism: markets that look global but are grounded in political hierarchy, religious principle, and kinship economics.

The Culture of Risk and Dissent

In much of the region, the financial system is not just a mechanism for capital formation, it is a reflection of national purpose. Markets are meant to showcase progress, to mirror the success of the broader state projects. That helps explain why speculation still carries a moral and political charge: volatility is read as weakness, and public bearishness as a challenge to the reform narrative itself. Where Western exchanges treat short positions as a search for price truth, many Middle Eastern markets see them as acts of dissent, signals that question not only a company's prospects but also the trajectory of the state, its leadership, and its economic vision. The state's dual role as market architect and largest shareholder reinforces this sensitivity, fostering a culture in which stability is equated with strength and open skepticism is formally discouraged.

The Moral Architecture of Finance

Beneath these market dynamics lies a deeper moral architecture. Much of the region's financial system operates under Sharia, the Islamic legal framework that governs economic conduct alongside personal and civic life. In finance, Sharia defines the boundaries of acceptable risk through three prohibitions: riba, the earning or payment of interest; gharar, excessive uncertainty; and maysir, transactions akin to gambling. These principles reject the idea that money alone can generate value and instead require returns to arise from tangible assets, shared enterprise, and productive effort. They encourage stability and purpose over speculation or chance, shaping both regulation and investor behavior. Even as regional exchanges adopt Western financial tools, this moral foundation remains intact, ensuring that many forms of leverage, derivatives, and short sales remain legally possible but culturally constrained.

Policy on the Tape

Short selling in the Middle East exists less as a practice than as a pledge. Exchanges adopt the framework to signal readiness for global capital, not because domestic demand requires it. Implementation varies sharply across the region, reflecting each market's political structure, investor base, and regulatory tolerance. Let's look at how short selling is treated across the main financial hubs of the region:

Together these examples highlight the gap between permission and participation. Short selling frameworks serve more as a credibility signal to MSCI and foreign investors than as working tools of price discovery, a way to claim alignment with global standards without relinquishing local control. They exist because optics matter.

Yet beneath this surface stability, change is brewing. As Jalal Faruki, head of custodial and securities services at SNB Capital, observed in a 2024 industry webinar, "The Saudi investment services market has really changed over the past three years. You now have a lot of international asset managers coming in and setting up offices in the kingdom."^[3] These aren't just traditional long-only funds. Long-short managers are arriving, and with them, demand for borrowed shares is beginning to materialize. Long-only investors buy stocks aiming to profit from price rises and dividend payments. Long-short investors buy what they believe are undervalued stocks and sell, or short, stocks they perceive as overvalued, seeking to benefit from both rising and falling prices. To short stocks, investors must typically first borrow them from other shareholders, creating a natural lending market.

The Aramco secondary offering in June 2024 generated $2.08 million in lending fees for shareholders through the year to September, demonstrating that when conditions align, the infrastructure can handle significant flow.^[3] Other Saudi stocks showed material borrowing activity: Acwa Power generated $990,000 in lending revenue, and Savola Group added $390,000. All ten of the top revenue-generating securities were Saudi-listed companies.^[3] Mid-cap and small-cap stocks, names that weren't previously accessible through over-the-counter derivatives, are seeing the longest tenors and most sustained borrowing interest.

Shorting From the Outside In

For those determined to express a bearish view, the challenge is less legality than logistics. The prohibitions that shape local behavior, religious, political, or cultural, don't bind foreign investors, but access does. Most Gulf listings trade solely on domestic exchanges, where foreign participation requires custody accounts, local brokers, and regulatory clearance. Even with approval, the absence of a robust borrow market means meaningful short positions are hard to build. The low effective free float of many regional stocks compounds the problem: when royal families, sovereign funds, and state enterprises control the majority of shares, there simply isn't enough inventory circulating to support large-scale shorting.

In Dubai, futures contracts on selected shares have been offered since September 2017, but volumes remain light. The cautious approach is understandable given retail investor dominance. Markets built on local savings are unlikely to embrace strategies that profit from decline. As Akber Khan, senior director of asset management at Al Rayan Investment in Doha, told Bloomberg in 2017, "But perceptions of regulators and governments are key hurdles for the implementation."^[2] The concern isn't just market mechanics; it's that bearishness might be read as doubt in the national project itself.

The Aramco secondary offering illustrated how event-driven demand can temporarily activate dormant infrastructure. As one market participant explained, "Transactions like the one from Aramco create a huge amount of demand for investors to borrow those shares with the expectation they would (then) cover (this) through the secondary offering."^[3] Short sellers bet that Aramco's stock price would fall as the supply of available shares increased once the secondary offering completed. These investors borrowed and immediately sold shares before the offering, planning to buy them back at lower prices afterward, a classic covered short strategy. The $12.4 billion deal proved the plumbing works when the incentives align, even if day-to-day activity remains subdued.

As a result, investors looking to hedge or speculate against the region rely on proxies, funds and cross-listings that live under Western regulation but mirror regional exposure:

• Regional ETFs
  • iShares MSCI Saudi Arabia ETF (KSA) – Tracks large-cap Saudi names; actively traded on U.S. exchanges with observable short-interest data.
  • VanEck Egypt ETF (EGPT) – Thinly traded but used occasionally to hedge macro and FX risk.
  • iShares MSCI Israel ETF (EIS) – Most liquid of the group, often a stand-in for regional sentiment.
• Cross-Listed ADRs and Dual Listings
  A small group of Israeli and Egyptian companies trade abroad, including Teva Pharmaceutical, Bank Leumi, Nice Ltd., Commercial International Bank (CIB), offering straightforward short access under U.S. or U.K. rules.
• Synthetic and Relative Trades
  Institutional desks sometimes pair long positions in global energy majors with shorts in emerging market ETFs, or short oil-linked equities in developed markets as a proxy for Middle Eastern beta.

These instruments allow exposure without breaching local moral or regulatory codes. Western investors can short them freely, while local investors, constrained by Sharia and by policy, cannot. The asymmetry is telling. Skepticism is outsourced.

Middle Eastern Companies on U.S. Exchanges

While short selling remains constrained within Middle Eastern markets, companies from the region that list on U.S. exchanges face an entirely different reality. These cross-listed firms encounter the full force of American market dynamics: transparent short interest reporting, active securities lending, and a culture that views bearish positions as essential price discovery rather than acts of dissent. Of the approximately 65-90 MENA companies listed on U.S. exchanges—predominantly Israeli firms—only a handful come from the Arab world. The contrast is stark, and for some MENA companies, the transition has been brutal. Two case studies illustrate the divergent paths these companies can take.

Case Study 1: Anghami — From SPAC Euphoria to Market Reality

Anghami Inc. (NASDAQ: ANGH), the Abu Dhabi-based music streaming platform, provides a cautionary tale of MENA ambitions meeting U.S. market skepticism. The company, often described as the "Spotify of the Middle East," went public in March 2022 through a SPAC merger with Vistas Media Acquisition Company. The deal valued Anghami at approximately $220 million and was accompanied by considerable fanfare. The company positioned itself as the largest voice-centric social networking and entertainment platform in the MENA region, with 12.5 million monthly user visits and 5.4 million paying users.

The initial market reception seemed promising. Trading began around $10 per share, but in the months that followed, Anghami's stock embarked on a volatile journey that would ultimately expose deep skepticism about its business model, revenue authenticity, and corporate governance. The stock briefly spiked above $28 before reality set in. By late 2024, shares had collapsed to under $3, a decline of more than 97% from their highs. On August 4, 2025, the company announced a 1-for-10 reverse stock split to regain compliance with Nasdaq's minimum bid price requirements.

The Anghami story illustrates what happens when MENA companies, accustomed to operating in markets where state backing and strategic importance offer protection from bearish sentiment, face the scrutiny of Western capital markets. Questions about user engagement metrics, revenue quality, and the sustainability of its business model in a competitive streaming landscape went from whispers to roars as the stock price collapsed. The company's struggles highlight the cultural and operational gaps that emerge when regional champions attempt to compete on the global stage without the protective guardrails of their home markets.

Activist Short Selling on MENA-Listed Companies

The asymmetry extends beyond cross-listed securities. While activist short sellers have become a powerful force in developed markets, using detailed research reports to expose fraud, question business models, and challenge management narratives, their impact in the Middle East has been limited but not absent. When activists do target MENA companies, particularly those listed on U.S. exchanges, the confrontations can be sharp, precisely because the companies are unaccustomed to such public challenges.

Case Study 2: Yalla Group — When Activist Research Targets a MENA Company

Yalla Group Ltd. (NYSE: YALA), a Dubai-based voice-centric social networking and gaming platform, became a target of activist short research in June 2025 when Pelican Way Research published a comprehensive bearish report. The company, which went public in September 2020 through a traditional IPO raising $149 million, had positioned itself as a market leader in the MENA region, reporting 12.5 million monthly user visits and significant engagement in its Yalla voice chat rooms and Yalla Ludo gaming platform.

Pelican Way's report alleged significant discrepancies between Yalla's reported financial metrics and third-party estimates, questioning the company's revenue authenticity, user engagement claims, and corporate governance practices. The research identified what it characterized as a $283 million gap between reported revenue and trusted third-party app data, suggesting actual revenue run rates of approximately $56 million versus Yalla's reported $339 million. The report also highlighted suspicious app review patterns, declining user monetization trends, and concerns about the company's complex offshore corporate structure.

Unlike Anghami's steady decline driven by operational challenges and market skepticism, Yalla's stock has shown resilience despite Pelican Way's detailed and methodologically rigorous critique. The report identified significant discrepancies using multiple independent data sources, cross-referenced app analytics, and documented patterns that would typically trigger substantial price pressure in developed markets. Yet following the report's publication, while the company's shares experienced volatility, they ultimately held much of their value. This disconnect between the quality of the research and the market's response illustrates a fundamental truth about MENA-listed companies: even well-documented concerns struggle to gain traction when institutional support, limited short selling infrastructure, and concentrated ownership structures create a protective floor that wouldn't exist for Western firms facing comparable scrutiny.

The Yalla case reveals not the limitations of activist research, but rather the structural barriers that prevent even the most thorough analysis from generating the market pressure it would command elsewhere. Pelican Way's work demonstrates the level of investigative rigor possible when examining cross-listed MENA companies, yet even exemplary research confronts formidable obstacles. Companies listed on U.S. exchanges but operating primarily in the Middle East often maintain complex ownership structures involving sovereign wealth funds, strategic regional investors, and family offices that can provide sustained support during periods of public criticism. The cultural and linguistic barriers that make it difficult for Western investors to independently verify operational metrics in Arabic-language markets create information asymmetries that favor management narratives over external analysis. Most importantly, the limited development of securities lending markets in the MENA region means that building large short positions against these companies, even when they're listed in New York, remains prohibitively expensive or simply impossible, regardless of how compelling the bearish thesis may be.

The Implementation Gap

Even where short selling is technically permitted, practical barriers remain formidable. Making securities lending Sharia-compliant stands as a central consideration for prospective lenders. Traditional securities lending involves interest-based fees, which conflicts with riba prohibitions. SNB Capital received regulatory approval for its own Sharia-compliant securities lending procedures in 2024, aiming to make participation viable for Islamic institutions.^[3]

Various Saudi bourse initiatives are actively driving demand for securities lending. Market-making programs, derivatives trading, and the continued enablement of short selling all create natural buyers for borrowed shares. As Simon Lee, head of regional business development at eSecLending, noted in 2024, "Some of the largest, most experienced, longest tenured beneficial owners that engage in securities lending are in the Middle East,"^[3] referring primarily to the region's sovereign wealth funds, which have long lent out their developed market equity holdings but are now considering similar strategies for domestic positions.

The regulatory architecture also reveals telling constraints. Under Saudi rules, qualified investors can generally transact with any counterparty, but retail investors must use a lending agent as intermediary, a structure that protects but also limits participation. Short selling is permitted only on securities appearing on the List of Designated Securities, and sellers must ensure they have "exercisable right" to shares before execution. These aren't the frictionless mechanics of developed markets; they're training wheels designed to prevent accidents while the market learns to balance.

The Boundary of Reform

The existence of short selling frameworks across the Middle East is therefore less about trading mechanics than about legitimacy. Allowing them signals that reform is under way; using them tests how far reform can go. Each new instrument, foreign ownership rules, derivatives, covered shorts, extends the perimeter of modernization until it touches politics. These are markets built to attract capital, not confrontation, where regulation still guards reputation as carefully as value.

The premium investors pay to short regional stocks tells its own story. At 405 basis points, Saudi lending fees run nearly seven times higher than the 60-basis-point EMEA average, a spread that reflects both scarcity and risk. As Shaan Jivan, a specialist in securities finance at S&P Global Market Intelligence, told a webinar, "These fees are very enticing."^[3] In stock lending, an entity, usually a broker or financial institution, pays a fee to borrow shares from an investor who owns them. The lender, typically a tracking fund or other passive investor, retains ownership of the stock and still benefits from share price movements and receives dividends. Stock lending can boost returns for long-term shareholders at relatively little risk, which explains why it has become standard practice among sovereign wealth funds and index trackers globally. But in the Middle East, elevated lending fees also signal market immaturity. In mature markets, abundant supply and efficient infrastructure keep borrowing costs low. Here, elevated fees reflect structural constraints: limited float, cautious lenders, untested infrastructure, and lingering uncertainty about how authorities might respond if short interest surges or a prominent name faces sustained pressure.

Yet the direction of travel seems clear. Saudi Arabia's securities lending pool grew from 13 percent to 58 percent of regional assets in just one year,^[3] a 345 percent increase that represents one of the fastest expansions of lending infrastructure in any emerging market globally. The number of securities on loan has grown significantly year-over-year, as has their aggregate value. Long-short hedge funds are setting up offices in Riyadh. Mid-cap stocks that weren't shortable a few years ago now trade with sustained borrow demand. The infrastructure is proving itself in small but meaningful ways.

While short selling activity remains measured in basis points rather than percentage points of float, the trajectory matters more than the current level. The evolution from zero to minimal isn't trivial. It represents crossing a threshold from prohibition to permission, from theoretical possibility to actual practice. For investors, short exposure here is not a bet on collapse but a measure of transparency itself. Understanding where that boundary lies, between permission and practice, between optics and openness, is the clearest way to read risk in the region. The frameworks exist. Whether they'll be used at scale remains the question that will define the next chapter of Middle Eastern market development.