Equity markets across the Gulf continued to fall on Monday, taking their two-day losses to about $400 billion (Dh1.47 trillion) as global stocks tumbled and crude prices posted their biggest daily drop since 1991.
The sharp fall in GCC markets follows slump in Brent crude prices — the benchmark for more than half of the world’s oil. It was trading 20.1 per cent lower at $36.18 at 6.16pm UAE time.
"The drastic fall in oil prices and growing fear over the rapid increase in coronavirus cases has affected the energy and tourism sectors," Vijay Valecha, chief investment officer at Dubai-based Century Financial, said.
"As oil income contributes more than 70 per cent of public revenue, stocks in the GCC region suffered steep losses and coronavirus fears simply added to those," he said.
The region's biggest bourse, Tadawul, closed 7.8 per cent lower, wiping a further $150bn off share values. State-owned Saudi Aramco, the world biggest oil producing company, fell 10 per cent when the market opened but later regained ground to close at 28.35 riyals, 11.4 per cent below its initial public offering price of 32 riyals.
Trading in Kuwait’s Premier Market was suspended for a third time in just over a week as the index fell more than 10 per cent.
“It’s a perfect storm with oil and the coronavirus hitting at the same time,” Mazen Al Sudairi, head of research at Al Rajhi Capital in Riyadh, said. “It [fall in equities] was expected today.”
Al Rajhi Capital expects earnings estimates of companies to be gradually revised lower in the first half of 2020 before they likely stabilise or pick up towards the end of the year.
“Oil being one of the major causalities is expected to have a cascading effect on the local economy,” Mr Al Sudairi said in a note to investors.
The Dubai Financial Market's main index slumped 8.3 per cent, with shares losing about $5.6bn. Dubai Islamic Bank, the biggest Sharia-compliant lender in the UAE, and blue chip Emaar Properties both dropped more than 9 per cent.
About $10bn was wiped off the value of shares on the Abu Dhabi market, with Dana Gas and Waha Capital among the shares declining by 10 per cent. The Muscat Securities Market index fell 5.6 per cent, while the bourse in Bahrain tumbled 5.8 per cent.
“The fears of coronavirus are right now second to worries on [the] oil price plunge," Hettish Karmani, the head of research at Muscat-based U-Capital, said. "At this level, we think, oil producers will have to come back to the table to find a solution.”
Markets are expected to remain "choppy" in the short-term, unless a new Opec deal is agreed or more positive news emerges regarding the coronavirus.
“This is not the year to invest in the materials sector, especially petrochemicals or energy stocks,” he said.
The decline in Gulf markets reflected declines in equity markets around the world. US markets opened sharply lower on Monday, with the S&P500 index down 5.9 per cent after falling as much as 7 per cent. The Dow Jones Industrial Index, which lost more than 2,000 point at one time, its biggest one-day loss ever, was down 5.4 per cent and the Nasdaq Composite index trading 6.7 per cent lower.
Stocks in Asia Pacific on Monday led the global sell-off, with Australia's S&P/ASX 200 closing down 7.3 per cent. Japan's Nikkei 225 slumped 5.1 per cent, South Korea's Kospi dropped 4.2 per cent, Hong Kong's Hang Seng shed 3.5 per cent and China's Shanghai Composite slipped 2.9 per cent.
The main indexes in Europe were also hit hard, with the FTSE 100 in London dropping 7.3 per cent by 5.22pm UAE time. The Eurostoxx 50 dropped 7.4 per cent and the DAX in Germany fell 7.2 per cent.
The US 10-year yield has crashed below 0.5 per cent and the entire US yield curve ranging from 3-month to 30-year is below 1 per cent for the first time in history.
Global indices are falling and bond yield dropping even lower as … oil’s downfall further hits the risk market sentiment,” “Overall, the state of the global economy looks extremely precarious with markets reeling under both demand as well as supply side issues,” Century Financial's Mr Valecha said.
While equities along with treasury yields have slumped, safe haven gold continued to march up, briefly crossing $1,700 per ounce in early trade but later settling below that mark.