UAE indices drop as pandemic only escalates
Declines come despite a surge in oil prices, which edged Saudi Arabia’s Tadawul higher
Dubai: UAE indices dropped on Sunday, staying pressured despite an oil price surge, with the emirates’ manufacturing data recording its lowest ever reading amid an escalating virus outbreak.
Dubai Financial Market (DFM) index dropped 2.36 per cent (40.79 points) to 1,682.08, while Abu Dhabi Securities Exchange (ADX) fell 2.18 per cent to 3,676.46 points.
The UAE PMI fell to 45.2 in March from 49.1 in February, the lowest reading since the survey began in August 2009 and signals a contraction in the non-oil private sector. The average PMI reading during the first quarter was 47.9, which suggests the non-oil sector contracted 2-3 per cent year-on-year in the first quarter of 2020.
“Conditions are likely to remain weak in Q2, but our baseline scenario envisages a modest recovery from Q3 2020,” wrote Khatija Haque, head of MENA Research at Emirates NBD.
Negative risks remain
“At this stage we expect the non-oil sector to contract 0.7 per cent in 2020, with higher oil production expected to boost headline GDP growth to 0.3 per cent,” Haque added. “However, risks to our forecasts remain skewed to the downside.”
Meanwhile, the possible delay to Dubai’s World Expo adds to mounting fears about the Emirate’s large corporate debts, said Jason Tuvey, a senior emerging markets economist at Capital Economics.
“The government is stepping in with financial support, but there is a growing chance that firms are forced to seek another debt restructuring or that Dubai’s government turns to Abu Dhabi for help.”
The United Arab Emirates central bank said on Sunday it had reduced banks’ reserve requirements for demand deposits by 50 per cent to support the country’s economy during the COVID-19 pandemic.
Declines amid oil price surge
The stock declines came amid a surge in Brent crude futures, which jumped 13.9 per cent, or $4.17 a barrel on Friday to settle at $34.11. Brent soared as much as 47 per cent on Thursday for its highest intraday percentage gain on record, closing up 21 per cent.
Oil staged its largest one-day rally in history on prospects for a cut in supply equivalent to anywhere from 10 per cent to 15 per cent of world demand. Optimism surged on Saudi Arabia and Russia thrashing out a deal to cut oil output.
However, recent developments suggest that the Kingdom will dig in and demand that the rest of OPEC+ share the burden before signing on the dotted line, said Jason Tuvey is a Senior Emerging Markets Economist at Capital Economics.
The OPEC has scheduled an emergency meeting on Monday, led by Saudi Arabia, where cuts equal to 10 per cent of world supply - about 10 million barrels per day - could be agreed upon.
Saudi Arabia’s benchmark index advanced 1 per cent on the price surge, in early trade, led by a 1 per cent rise in oil giant Saudi Aramco and a 2.5 per cent increase in petrochemical firm Saudi Basic Industries.
"Regional markets will closely follow the developments on the OPEC+ deal as it will have a direct impact on the domestic economies, going forward," said Iyad Abu Hweij, managing director at Allied Investment Partners.