Traders at Dubai Financial Market. As markets plunge into uncertainty amid nearing US elections and a second wave of surging COVID-19 infections worldwide, investors were bracing themselves for a bumpy ride. Image Credit: Gulf News

Dubai: As markets plunge into uncertainty amid nearing US elections and a second wave of surging COVID-19 infections worldwide, investors were bracing themselves for a bumpy ride in the week ahead.

Investor sentiment is currently taking a nosedive as the likelihood of further dramatic increases in COVID-19 cases across the world collided with the final days of the US presidential election campaign.

Last week, shares in the US and Europe slumped at their fastest rate since March and analysts said more declines may be yet to come, after France and Germany imposed strict lockdowns and US states came under pressure to tackle the rising number of deaths.

However, most analysts are off the opinion that new lockdowns across Europe are being harshly repriced by markets, considering the previous months showed a market sentiment that was recovering.

There is a spike in cautiousness and related market volatility about a second wave, analysts say, while adding that with some government finances beginning to be stretched, the threat of further lockdowns is causing a large degree of anxiety.

Heightened risks

Heightened levels of concern about the path of the virus began to affect markets three weeks ago. From New York to Paris, London and Tokyo, investors sold heavily from October 13 onwards as each day brought news of higher infection rates and growing numbers of deaths.

“With markets in the pre-election window and the bid side lacking in any meaningful depth, market chatter that a prominent Asia (Japan) investor is liquidating tech stocks does not help matters either,” explained Stephen Innes, Chief Global Market Strategist at Axi. “In general, last week’s stock market underperformance has been led by second-wave/lockdown worries.”

“The Nasdaq concentration risk and outperformance through narrow leadership still worries me,” Innes added. “So perhaps we are seeing those “long and wrong worries” flesh out on probably the most “fragile Friday” of the year.”

From October 13 to the end of last week, France’s key Paris index lost over 8 per cent, while London’s top 100 listed companies slumped 7.5 per cent over the same period. Last week, the STOXX 600 index of European companies slumped to its lowest level in five months, falling 3.1 per cent in a day.

No sign of US stimulus

In the US, a drop in stock values that began in September turned steep after it became clear President Donald Trump wouldn’t get the green light for the sought-after second trillion-dollar stimulus package.

Without a tranche of cash to support closed businesses and millions of unemployed workers, hopes that an economic recovery seemingly looked robust lacked substance. The S&P 500 lost more than 8 per cent in the 16 days that followed October 13.

Fears of a COVID-19 second wave had spooked markets before, but the rallies that turned the previous panics into mere blips on a chart appear to be absent this time. Investors were looking beyond any news of a vaccine, to a ripple effect that flows from the widespread adoption of physical distancing, particularly as the holiday season approaches.

“We are in the thick of the COVID-19 haze now,” Innes added. “Winter is coming to the northern hemisphere, where crowding and social- behavioural patterns could be a frightening source of a seasonality bounce in the COVID-19 curve.”

Worrying oil price slump

Moreover, another cause for concern for investors in the oil-reliant Gulf economies, were the price of oil. Oil witnessed a steep decline of 9.2 per cent last week as markets appeared to be wary about demand amid rising COVID-19 cases in Europe and the US.

“Fresh worries that politicians worldwide will be pressured to lock down Christmas this year is hitting the oil markets like a ton of bricks,” Innes said. “Indeed, the alarmingly high level of angst in the markets makes it easy for the oil roller coaster to crest rally peaks and head downhill at alarmingly quick speeds.”

Crude oil tumbled to record its worst month since March this year with rising fuel demand worries in virus-hit regions and a growing belief that OPEC+ will postpone the agreed January production increase, forcing Brent crude oil to fall below $39 per barrel.

Crude drop hurts Gulf markets

Most stock markets in the Middle East region declined as investors factored in the risk of the US election, increasing possibility of pandemic lockdowns and growing angst over declining oil prices.

Dubai’s DFM General Index dropped 1.6 per cent, the biggest loss in the region, followed by a 0.6 per cent retreat in Abu Dhabi’s ADX. Gauges in Kuwait, Saudi Arabia and Oman also fell, while Qatar’s edged higher.

The oil price slump this month, was the steepest drop in seven months, as renewed lockdown measures to contain the coronavirus threatened to choke off a recovery in demand.

Several regional markets including the bourses in the UAE and Kuwait were closed Thursday for a holiday, when indexes in Saudi Arabia and Qatar had slumped.