Invesco's sixth annual Middle East Asset Management study showed a change in 'net respondent view scores' of 17% negative views in 2014 for Saudi Arabia to 61% positive in 2015, "a significant finding in the context of low oil prices and declining government surpluses".
Bahrain has also seen a change in fortunes, from a 73% negative view score to a positive 27% in 2015. However, this is mainly based on the outlook for Saudi Arabia and the UAE, Invesco said.
"Participants recognised that Bahrain is no longer a major financial centre and its fortunes are dependent on its neighbours. Saudi Arabia is seen as the key partner and initiatives which capture inflows from Saudi are critical to the future outlook," it said.
The primary driver of inflows in Saudi Arabia was positive perceptions of the economy and the opening of Saudi capital markets, Invesco said.
The opening of the Tadawul, Saudi Arabia’s stock market, to international investors in June, was seen as "only the first step in market liberalisation", and future reforms will drive capital inflow in the medium term, Invesco said.
The Tadawul opened in June to qualified foreign investors including banks, brokerages, fund managers and insurance companies with at least 18.75 billion riyals (US$5 billion) in assets.
Previously only the six states that form the Gulf Cooperation Council (GCC) had free access to the Tadawul. Foreign investors have been permitted to access the market through equity swaps and exchange-traded funds since 2008.
There is, however, potential for the positive sentiment on Saudi Arabia to change quickly, Invesco said.
"Qualitative feedback from our interviews in Saudi Arabia and the wider region noted that sentiment in Saudi Arabia was volatile," it said.
"During the interview period, positive perceptions on the economy and capital markets outweighed concerns over the oil price, government finances and regional instability. However the Middle East can change quickly. The opening of the capital markets may be disappointing, the government may cool on future reforms or economic and political issues could resurface," Invesco said.
The UAE was the only perceived net importer of private capital into the GCC region in 2014, and continues to benefit from "highly diversified sources of capital", Invesco said.
"Wealth is created in other GCC regions but flows out to the UAE and international markets," Invesco said.
The study is based on interviews with 167 sovereign wealth funds, state pension funds, local insurance companies, family offices, banks and IFAs across the region.