Coronavirus continues to weigh on stock markets as gold heads north

The slide in global indices has extended to regional markets in the Middle East

A general view of the Dubai Financial Market in Dubai, United Arab Emirates, February 25, 2020. REUTERS/Christopher Pike

The acceleration of the coronavirus continues to weigh on stock markets globally with the selloff by investors extending to regional markets in the Middle East.

In their first day of trading after the S&P 500 index in the US fell 11.5 per cent last week, markets across the Gulf followed the downward trajectory. It was the worst week for US equities since the 2008 financial crisis and oil also dropped to the $50 per barrel mark.

The Dubai Financial Market General Index dropped 4.5 per cent, while stocks in Abu Dhabi declined 3.6 per cent. Kuwait's regulator suspended trading in its Premier Market after the index slumped almost 11 per cent. Saudi Arabia’s Tadawul, the biggest Arab bourse by market capitalisation, fell 3.7 per cent. The main stock indexes in Bahrain and Oman also fell 3.4 per cent and 1.2 per cent respectively.

“It is a knee-jerk reaction, a domino effect [of the global equities drop]. We are not immune than other regions as we have Iran up north with so many cases [of the coronavirus],” said Nabil Rantisi, general manager for wealth management at Dubai-based Daman Investments. “The problem is that the process of containing the virus is causing a disruption to global supply chain …. the cash flow cycle is being disrupted and that is the main challenge.”

Global stocks were rattled last week, with the Dow Jones Industrial index slipping more than 11 per cent and Japan’s Nikkei dropping almost 10 per cent. The FTSE 100 in London, Hong Kong’s Hang Seng and the MSCI World Index slumped, 11.9 per cent, 4.3 per cent and 10.9 per cent respectively for the week.

Investors now fear a global recession as authorities around the world struggle to contain the virus, which has affected global trade and tourism. Global supply chains have been disrupted, as factories across mainland China remain idle as Beijing tries to contain the spread of the virus.

Shailesh Dash, founder of Dubai-based Al Masah Capital said equities, particularly US stocks, had a long bull run and were “due for a correction” and now some selective stock picking options are available to investors. “There is still weakness on the horizons …. it still remains to be seen what will be the impact of the coronavirus on both global trade and supply chain,” he added.

The World Health Organisation last week raised the alarm on the virus to "very high" from "high" but stopped short of calling the outbreak a pandemic. The WHO director general on Sunday, however, said panic and fear were having more of an impact on people than the virus itself.

Saxo Bank, however noted that the increased risk of a global pandemic could still have a major negative economic impact.

“A drop in consumer confidence, behaviour and spending may further negatively impact company earnings already under pressure from broken supply lines,” it said in a note to investors on Sunday.

The virus that has spread from its source in China's Hubei province has also affected South Korea, Italy and Iran. Global fatalities from the pneumonia-like infection neared 3,000 with the number of confirmed infection cases worldwide reaching about 86,000.

In Dubai, the main equities index was pulled down by banking and property stocks, with Emirates NBD dropping 6.7 per cent. Emaar Properties falling 5.1 per cent, while budget carrier Air Arabia dropped 7.1 per cent.

Abu Dhabi Islamic Bank and Abu Dhabi Commercial Bank, weighed heavy on the emirate's benchmark equities index with both losing more than 5 per cent each. National Bank of Kuwait's 14.5 per cent drop and global logistics firm Agility's 9.9 per cent slide weighed down the market in Kuwait. In Saudi Arabia, of 199 listed companies, 190 lost value. Al Rajhi Bank slumped 3.9 per cent and National Commercial Bank fell 4.1 per cent at the market's close.

The drop in the regional equities, Mr Rantisi said, does open a window of opportunity for investors.

“I think this creates opportunities like any other crisis …. certain companies with great value for money, you are going to get them at a discount now,” he said. “Nothing stays in one direction,” he said adding that market will correct itself once people starts buying into dips.

Volatility also hit oil markets last week as the reverberations of the virus raise concerns about oil demand. Commodity prices reflected the risk-off sentiment with Brent, the most widely used pricing benchmark. They fell almost 14 per cent over the week, while WTI slid more than 16 per cent to below $45 per barrel.

“The fixation for oil markets” will be Opec and its allies meeting in Vienna on March 5 and 6, Edward Bell, commodity analyst at Emirates NBD wrote in a note on Sunday. “Opec+ is largely expected to endorse more production restraint.”

Gold, a traditional haven in times of volatility, traded near its 2013 highs last week, but Swiss private bank Lombard Odier on Sunday said in case of a “full-blown risk-off episode” associated with a global pandemic, the yellow metal could see further gains.