People are wearing masks following the outbreak of the virus.
Investors this week will keep a close eye on the deadly coronavirus outbreak in China and beyond, which is hurting global economic growth Image Credit: AP

Dubai: Investors this week will keep a close eye on the deadly coronavirus outbreak in China and beyond, which is hurting global economic growth, while staying hopeful any impact would be short-lived.

Although there was a bit of profit-taking seen in markets on Friday, after having rallied through most of last week, markets are seen recovering this week from a brutal sell-off recorded earlier in the wake of an alarming China-centered virus contagion.

“Investors are hopeful that global economies might be resilient to face the coronavirus outbreak in China,” said Iyad Abu Hweij, managing director at Allied Investment Partners PJSC, adding that they will be keen to know the progress or steps taken to contain the virus from spreading any further.

Eyes on Powell, top banks

Coming up this week is testimony by US Federal Reserve Chairman Jerome Powell before Congressional committees, where he is expected to reiterate the Fed’s view that no further changes in interest rates are needed in the world’s top economy.

This comes days after the Fed said in a report that the coronavirus outbreak is a new risk to US outlook, while adding that the fragility in China’s financial sector may make the world’s second-largest economy vulnerable to adverse shocks.

Central bank decisions will also be key this week after surprise rate cuts from Thailand and the Philippines last week.

“In the past couple of weeks, policymakers in China, Sri Lanka, Malaysia, Thailand and the Philippines have lowered interest rates. We also now think the central banks of Korea and Taiwan will cut interest rates over the coming weeks,” analysts at Capital Economics wrote in a note.

Brakes on growth

UBS Global Wealth Management’s Chief Investment Officer Mark Haefele said the coming days could provide an important look at how the virus is impacting China’s economy.

“Next week, Chinese factories are set to reopen after the extended Lunar New Year holiday, and important indicators to note will be to what extent the virus spreads as people resume travel back to work, and how long it takes for production to return to full capacity,” he wrote in an email.

Containment measures in China are widely expected to cause a contraction in first-quarter GDP in the world’s second-biggest economy, but investors will remain watchful of the extent of the impact.

S&P Global said it would cause a large but temporary drop in China’s GDP. It lowered its 2020 forecast to 5 per cent from 5.7 per cent but raised its 2021 forecast to 6.4 per cent from 5.6 per cent. Capital Economics estimates disruption related to the coronavirus will cost the world economy over $280 billion in the first quarter of this year.

UAE to weigh oil hit

The regional markets will continue to remain under pressure as weakness in oil prices will weigh heavily on trading activity, Iyad Abu Hweij said. UAE bourses saw broad weakness last week with the Dubai Financial Market (DFM) index losing 0.8 per cent, and Abu Dhabi’s ADX down 1.3 per cent.

Oil prices remain in the danger zone after almost a week full of back and forth between OPEC+ members on delivering deeper production cuts to offset the coronavirus impact on Chinese demand, said Edward Moya, senior market analyst at Oanda.

As expected, the DFM benchmark started the week in the red, declining 0.6 per cent, while ADX remained largely unchanged. On the DFM it was a day of heavier-than-usual trading, with Emaar Malls down over 2 per cent and DXB Entertainments up 5 per cent after reporting their annual results.

Arabtec, which fell about 14 per cent last week and down for a seventh consecutive week, fell further on Sunday, with shares down 9.2 per cent. The declines come amid reports that the company’s Chief Financial Officer (CFO) Adel Al Wahedi has resigned, to which the company did not confirm nor deny the development.