Dubai: Stock markets in the UAE remain stuck in a downward spiral after authorities announced a suspension of passenger flights for two weeks to limit the spread of the coronavirus.
“COVID-19 is freezing up the economy - we are dependent on oil for government revenues and on tourism,” said Charles-Henry Monchau, chief investment officer at Al Mal Capital. Obviously, both are currently acting as massive headwinds.
“Tourism is almost down to zero, there are no flights, so spending is going to suffer. As for the oil price crash, there’s potential for even more downside.”
Squeezed on all sides
The Dubai Financial Market (DFM) index dropped by 3.8 per cent to close at 1,714, bringing its year-to-date loss to nearly 40 per cent. Most stocks slumped, with Dubai Islamic Bank and Emirates NBD down 3.15 per cent and 4.95 per cent, respectively.
Emaar declined by 4.7 per cent as Emaar Malls fell 4.95 per cent after the government decided to close all commercial centres and shopping malls in the country.
In Abu Dhabi, the market’s main index fell by 3.1 per cent to end the day at 3,442 with all the powerhouses in the red. Etisalat fell by 3.88 per cent, while Aldar Properties declined 4.4 per cent and First Abu Dhabi Bank lost 3.1 per cent.
Abu Dhabi Commercial Bank dropped 4.95 per cent. The markets regulator in the UAE set the limit down for share prices at 5 per cent compared to 10 per cent as volatility rages.
The Gulf and its markets are also hurt by plunging oil prices as OPEC failed to agree on production cuts. Brent crude prices are now trading at around $25 a barrel, down from close to $70 in January.
The double-whammy of the virus outbreak plus lower oil prices will add pressure on regional governments’ ability to spend. But according to Monchau, there’s a silver lining. The UAE government does not have as much debt as other governments, such as Italy or other European governments.
So there’s some leeway to continue spending.
Analysts are now waiting for the peak of the virus outbreak. In China, which was epicentre of the outbreak, some economic activity is restarting, and as governments across the globe impose curfews and lockdowns, investors hope the virus will lose some of its virulence.
This, coupled with the continued liquidity injections from central banks and governments, is expected to ease some of the pain from slower economic activity.