Gulf investors lose Dh150B in a day
Markets plunge after Opec fails to agree on output cuts; likely price war adds to jitters
Equity investors in the UAE and GCC panicked on Sunday after Opec+ talks on production cuts collapsed on Friday, as regional markets witnessed a massive selloff, wiping out more than Dh150 billion from regional investors' wealth in a day.
Regional equity markets have been reeling from the impact of coronavirus over the last two weeks and Opec+'s disagreement over the weekend further added pressure on markets.
The Dubai Financial Market plunged 7.9 per cent to 2,266.93 points with only two out of 35 traded scrips gaining. The Abu Dhabi Securities Exchange plummeted 5.4 per cent to 4,393.85 points.
Kuwait suspended its share trading - the second time in March - after its main index nosedived 10 per cent on Sunday. Saudi Arabia's Tadawul dropped by 8.3 per cent to 6,848 points, Oman's Muscat Securities Market fell 2.75 per cent to 3,995 points, Bahrain's All Share Index lost 2.9 per cent to 1,562 points and the Qatari index dropped 2.9 per cent to 9,037 points.
The wealth of equity investors in the UAE fell by Dh21.7 billion - Dh10 billion in Dubai and Dh11.7 billion in Abu Dhabi. The Tadawul saw its market capitalisation lose $24 billion (Dh88 billion). Kuwait gave up $9 billion (Dh33 billion) and Qatar lost $2 billion (Dh7.34 billion).
any scrips in the UAE and Saudi Arabia hit record lows. Emaar Properties closed below Dh3 a share, while Dubai Islamic Bank fell 41 fils to Dh4.9. Saudi Aramco was down 4.6 per cent to SR31.50 ($8.50), trading for the first time below its initial public offering price of SR32.
Oil prices fell 10 per cent on Friday after Opec's pact with Russia on production cut fell apart. Following that, Opec members will reportedly ramp up production, which will glut the crude market even further and push prices even lower in coming sessions.
Aditya Pugalia, director for financial markets research at Emirates NBD, said the decline in the market is a reaction of the oil price fall following the collapse of Opec+ talks.
"Oil prices dropped nearly 10 per cent, which weighed heavily on investor sentiment. That is the primary reason that is driving the local markets lower. Oil prices are currently trading at lows that were last seen in June 2017 and this news comes at a time when economic activity is reasonably slow due to coronavirus. That adds to the worry of investors and is reflective in equity markets at this point of time. It could also be the case of investors taking the money off the table and looking at things to stabilise before coming back in," Pugalia said.
He said the bigger worry for investors is that they are unable to quantify the risk or impact coronavirus is having on economic activity and that is turning them cautious.
Vijay Valecha, chief investment officer at Century Financial, said markets are finding it difficult to cope up with all the new event over the last couple of days resulting in a panic selloff.
The way forward, according to Valecha, is not rosy for UAE and Gulf markets with oil demand and tourism sectors both expected to take a major hit. "For the week ahead, investors should brace them up for extreme volatility as fears over the rapid spread of the epidemic worldwide, coupled with its unpredictable impact on the economies dominate the sentiments. While UAE and GCC markets will continue to follow trend in line with global markets, the sharp fall in oil prices will probably result in deeper losses for the investors in these regions," he said.
During the course of this week, Pugalia said local investors would focus on how oil prices and global equity markets fare before they put they start to put money back to work.
"Globally, investors are likely to pay more attention to how policy makers are responding to the crisis. Last week, the Fed cut rates by 50bps and this week we have the EU central bank meeting. Investors would like to see how the central banks respond and, even more importantly, how governments respond through fiscal policy initiatives in order to negate the severe impact Covid-19 has on economic activity," he added.
Going forward, Iyad Abu Hweij, managing director of Allied Investment Partners, said volatility might continue to remain at elevated levels as the heightened anxiety might persist due to the rapid spread of the epidemic globally, coupled with its unpredictable impact on global economies.
"The regional markets will continue to follow the trend in global markets but the sharp decline in oil prices is becoming a bigger concern for regional investors amid adverse global headlines," said Abu Hweij.
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