When will Opec land a deal? UAE investors seem to have made up their mind that a deal on oil production cuts is imminent. Markets respond in kind. Image Credit: Gulf News Archive

Dubai: UAE indices on Thursday resumed a rally from earlier in the week, as investors continued to pin hopes on the COVID-19 spread not worsening any further.

Dubai Financial Market (DFM) index gained 3.5 per cent (62 points) to 1,830, while Abu Dhabi Securities Exchange (ADX) rose 6.4 per cent to 4,113 points. Both gained over 5 per cent on Tuesday, but shed a per cent each a day later.

The gains on ADX comes after Abu Dhabi launched a $7 billion bond issue on Wednesday.

Even with the recent rally, the indices are still far below this year’s peaks. DFM was still down 38 per cent and ADX by 23 per cent below their mid-January highs.

“While the Emirates is in strong fiscal position relative to other GCC states, much lower than expected oil prices and the economic impact of the coronavirus are likely to result in a budget deficit this year,” said Khatija Haque, head of MENA research at Emirates NBD. “We estimate a consolidated UAE budget deficit of 6.5 per cent of GDP in 2020.”

The sentiment was also shared by investors elsewhere, with markets on Wall Street and key indices in Europe and the Asia-Pacific also posting gains – albeit at a slower rate than before.

Lasting rally? Don't be so sure

Analysts were not hopeful the rally will last. “The current risk-on rally may continue another day or week, but ultimately if this market crisis plays out like the others, a massive selloff should be brewing,” wrote Edward Moya, senior market analyst at OANDA.

Also, another reason for the current state of calm in the region was the rising price of crude on both sides of the Atlantic. Gains were on the back of expectations that the world’s biggest producers would finally agree on production cuts, which in turn aided Brent’s prospects in the oil-dependent Gulf states.

“Given the magnitude of the current economic crisis, there’s a high chance of a deal being struck,” wrote Hussein Sayed, Chief Market Strategist at FXTM. “That could send prices a little higher in the short-term, but fundamentals will still rule further out. If demand doesn’t recover by the end of April, then that supply-demand equation will again look terrible.”

This comes a little over a month after the expired OPEC+ deal led to a surge in crude production by Saudi Arabia in a fight for market share, despite the industry being confronted with the coronavirus-driven collapse in demand. Brent crude has managed to recover half of its losses from the March lows, while WTI has gained 34 per cent. However, both benchmarks have still lost more than half their value since the beginning of the year.