Dubai: The GCC’s main equity indices joined their global peers in taking a plunge on Monday amid rising cases of coronavirus infections and plummeting oil prices.
In the UAE, the Dubai bourse index ended 8.3 per cent lower, at 2,078, with many of the market’s top powerhouses such as Emaar and Dubai Islamic Bank tumbling over 9 per cent.
The selling activity in the market hit just about every single stock. Share prices of Dubai Islamic Bank plunged 9.4 per cent, while Emaar fell by 9 per cent, Emirates NBD by 9.95 per cent, and Aramex by 7.8 per cent. The limit for price declines in the UAE is 10 per cent, meaning prices are falling almost as much as they possibly can.
In Abu Dhabi, the bourse’s main index closed 8.06 per cent lower, at 4,039.59, with barely any gainers and many stocks falling limit down by 10 per cent. First Abu Dhabi Bank fell by around 9 per cent, while Abu Dhabi Commercial Bank and Aldar Properties fell by 9.9 per cent and 9.95 per cent respectively.
The declines come as oil prices crashed by over 30 per cent, the most since 1991, after Opec members failed to agree on production decisions, triggering a price war. At a meeting of oil producers, Saudi Arabia announced the biggest cut in its prices in the last 20 per cent, as per media reports.
The meeting was expected to conclude with a deal to deeper cuts to counter the impact of uncertainty and lower demand from the coronavirus. Russia, however, refused to tighten its supply.
Elsewhere in the region's stock markets, Saudi Arabia’s Tadawul index dove fell by 6 per cent, after plunging over 9 per cent soon after trade began. Kuwait’s main index fell by over 10 per cent.
The latest news from Opec has only exacerbated what have already been a volatile few weeks for markets due to rising concerns about the impact of the coronavirus. The number of cases globally is now over 109,000, including over 3,700 deaths. The UAE has already cancelled various events, and shut down schools, universities, and nurseries in favour of remote learning.
In Europe, Italy has announced a quarantine that impacts around 16 million people, and analysts have lowered their forecasts for global growth and demand this year as a result of the virus.
Charles-Henry Monchau, head of investment management and chief investment officer at Al Mal Capital in Dubai, said that oil and the coronavirus are creating “the perfect storm” for financial markets.
“We already know that Covid-19 is bad for demand for oil from Asia, and now we have a supply disaster after the Opec meeting because what’s in the cards is that Saudi Arabia could be pumping as many as 12 million barrels of oil per day,” he told Gulf News.
Monchau said investors now are adopting the “sell now, think later” mindset amidst all the panic. He said there could potentially be more downside for regional markets, after Dubai’s main index fell nearly 16 per cent in just two days.
“I think it will stay very volatile and scary for some time. We need to hit the bottom, but that can take some time,” he said.
In the GCC, many governments make a chunk of their revenues from oil sales. With oil prices now on the decline, this could hurt government spending, and thus, equity markets. Even in Dubai, where the government is more reliant on sectors such as tourism and trade, there could be challenges because of travel restrictions and fears caused by the coronavirus.
Unless oil producers renegotiate their plans, oil prices could hit $20-$25 a barrel, Monchau warned.