UAE Pledge Calms Markets but Dubai Fears Remain
European shares slipped Monday as investors continued to worry about the contagion effects from a possible default by Dubai World on its obligations.
Banking, oil and construction stocks fell in Europe amid fears that creditors and investors would lose at least part of their money in projects — which are now likely to be halted — in the United Arab Emirates. Stocks in Dubai dropped Monday as well, although not as much as feared, as the market there reopened after a four-day holiday and traders got their first chance to catch up with the Dubai World news.
But Asian stocks rose and European and American government bond prices held relatively stable, investors said, suggesting that the fear of a major contagion was contained.
Investors in those markets appear to have been heartened by a pledge Sunday from the central bank in the United Arab Emirates to make extra financing available to all banks in the country, including foreign institutions with local branches.
Stephen Lewis, head of research at Monument Securities in London, said Dubai was not big enough to set off a chain of lasting financial repercussions outside the Middle East of the same magnitude as the crisis in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions.
He said Dubai World’s over-reaching was likely to have dampening effects on Middle Eastern economies for some time, while the Islamic bond market, construction companies and European banks that have existing bad debt problems could all expect longer-term fallout.
Dubai’s key stock market index was down 7.3 percent on Monday, while stocks in Abu Dhabi — Dubai’s neighbor to the southwest and another member of the emirates — tumbled by 8.3 percent. Other indexes in that region were stable.
Shares of the National Bank of Abu Dhabi plunged nearly 10 percent after the bank said it was owed $345 million by the Dubai World.
Shares in Dubai World plunged 15 percent.
Meanwhile, Nakheel — Dubai World’s property developer — said Monday that it had asked for its Islamic bonds, worth billions of dollars, to be suspended from trade until it could provide more information about its restructuring plans.
The Dubai crisis began last week, when the emirate said Dubai World, its investment arm, would not be able to make on-time payments for some of its $59 billion in debt. The company invested in lavish real estate projects, including artificial islands in the shape of a palm tree, and spent heavily to acquire stakes in glittering assets globally.
The immediate future of Dubai, led by Sheikh Mohammed bin Rashid al Maktoum, depends on how creditors respond to the demands to delay repayments of Dubai World debt.
The director general of the Dubai Department of Finance, Abdulrahman al-Saleh, said market reaction to Dubai World’s announcement was exaggerated and did not match the extent of the company’s woes.
“I think banks are not at a stage where they need any extra liquidity from the central bank,” he said on Dubai TV, Reuters reported from Dubai. “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.”
Beyond Dubai, European investors are also worried about the possibility of default from countries with the largest fiscal imbalances, like Greece and Ireland and to a lesser extent, Britain. Low-rated corporate and sovereign bonds are being shunned by investors, who have pushed up the cost of insuring against defaults since the Dubai announcement.
European shares were down, but trading off their lows. In London, the FTSE-100 and the Paris-based CAC-40 were both down by about 1 percent. The Dax in Frankfurt was about the same.
Banks were among the top decliners, with Standard Chartered, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas and Credit Agricole falling 1.2 to 5.3 percent. HSBC, however, rose 0.7 percent.
The Bank of Ireland slid 1.8 percent after saying it may post a loss of €3.4 billion on bad loans that it is selling to the state.
Vinci, the giant French infrastructure company that is planning to build a major bridge in the United Arab Emirates, lost 1.3 percent and BP, the oil company, shed 1.2 percent.
Index futures on Wall Street pointed to a mixed open on Monday, after sharp falls Friday.
While investors in the United Arab Emirates were digesting the Dubai news, markets in the Asia-Pacific region regained their poise on Monday.
In Japan, the benchmark Nikkei 225 index climbed 2.9 percent, recouping some of the losses it had suffered Friday, when global market jitters over the news from Dubai spread to Asia. The country’s three main banks all jumped: Sumitomo Mitsui Financial Group by 8.9 percent, Mitsubishi UFJ by 8.6 percent and Mizuho Financial by 9.5 percent.
The main market gauges in Australia and New Zealand gained 2.9 percent and 1 percent, respectively. In South Korea, the Kospi index gained 2.4 percent, the Taiex index in Taiwan rallied 1.2 percent, and the main index in mainland China rose 3.2 percent.
In Hong Kong, the Hang Seng index rose 3.25 percent, with banks among the biggest gainers: HSBC and Standard Chartered, both of which had fallen sharply Friday, gained more than 4 percent each.
Only Singapore dropped. The Straits Times index sagged more than a percent as the market, which was closed for a public holiday Friday, played catch-up with the broad declines at the end of last week.
On the foreign exchange markets, the euro gained, touching $1.5040 and the pound weakened as some investors worried that the potential damage that problems in the U.A.E. could have on Britain’s financial sector.
The yen — which usually gains in times of uncertainty, as it is seen as a safe haven — eased back slightly against the U.S. dollar and euro, yet another signal that confidence was returning. By mid-morning in Europe, it traded at around Ą86.4 per dollar, and Ą130.0 per euro.
“On the global scale, this episode will likely be remembered as a local or regional one and a buying opportunity for risk assets elsewhere,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.
Bettina Wassener reported from Hong Kong
European shares slipped Monday as investors continued to worry about the contagion effects from a possible default by Dubai World on its obligations.
Banking, oil and construction stocks fell in Europe amid fears that creditors and investors would lose at least part of their money in projects — which are now likely to be halted — in the United Arab Emirates. Stocks in Dubai dropped Monday as well, although not as much as feared, as the market there reopened after a four-day holiday and traders got their first chance to catch up with the Dubai World news.
But Asian stocks rose and European and American government bond prices held relatively stable, investors said, suggesting that the fear of a major contagion was contained.
Investors in those markets appear to have been heartened by a pledge Sunday from the central bank in the United Arab Emirates to make extra financing available to all banks in the country, including foreign institutions with local branches.
Stephen Lewis, head of research at Monument Securities in London, said Dubai was not big enough to set off a chain of lasting financial repercussions outside the Middle East of the same magnitude as the crisis in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions.
He said Dubai World’s over-reaching was likely to have dampening effects on Middle Eastern economies for some time, while the Islamic bond market, construction companies and European banks that have existing bad debt problems could all expect longer-term fallout.
Dubai’s key stock market index was down 7.3 percent on Monday, while stocks in Abu Dhabi — Dubai’s neighbor to the southwest and another member of the emirates — tumbled by 8.3 percent. Other indexes in that region were stable.
Shares of the National Bank of Abu Dhabi plunged nearly 10 percent after the bank said it was owed $345 million by the Dubai World.
Shares in Dubai World plunged 15 percent.
Meanwhile, Nakheel — Dubai World’s property developer — said Monday that it had asked for its Islamic bonds, worth billions of dollars, to be suspended from trade until it could provide more information about its restructuring plans.
The Dubai crisis began last week, when the emirate said Dubai World, its investment arm, would not be able to make on-time payments for some of its $59 billion in debt. The company invested in lavish real estate projects, including artificial islands in the shape of a palm tree, and spent heavily to acquire stakes in glittering assets globally.
The immediate future of Dubai, led by Sheikh Mohammed bin Rashid al Maktoum, depends on how creditors respond to the demands to delay repayments of Dubai World debt.
The director general of the Dubai Department of Finance, Abdulrahman al-Saleh, said market reaction to Dubai World’s announcement was exaggerated and did not match the extent of the company’s woes.
“I think banks are not at a stage where they need any extra liquidity from the central bank,” he said on Dubai TV, Reuters reported from Dubai. “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.”
Beyond Dubai, European investors are also worried about the possibility of default from countries with the largest fiscal imbalances, like Greece and Ireland and to a lesser extent, Britain. Low-rated corporate and sovereign bonds are being shunned by investors, who have pushed up the cost of insuring against defaults since the Dubai announcement.
European shares were down, but trading off their lows. In London, the FTSE-100 and the Paris-based CAC-40 were both down by about 1 percent. The Dax in Frankfurt was about the same.
Banks were among the top decliners, with Standard Chartered, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas and Credit Agricole falling 1.2 to 5.3 percent. HSBC, however, rose 0.7 percent.
The Bank of Ireland slid 1.8 percent after saying it may post a loss of €3.4 billion on bad loans that it is selling to the state.
Vinci, the giant French infrastructure company that is planning to build a major bridge in the United Arab Emirates, lost 1.3 percent and BP, the oil company, shed 1.2 percent.
Index futures on Wall Street pointed to a mixed open on Monday, after sharp falls Friday.
While investors in the United Arab Emirates were digesting the Dubai news, markets in the Asia-Pacific region regained their poise on Monday.
In Japan, the benchmark Nikkei 225 index climbed 2.9 percent, recouping some of the losses it had suffered Friday, when global market jitters over the news from Dubai spread to Asia. The country’s three main banks all jumped: Sumitomo Mitsui Financial Group by 8.9 percent, Mitsubishi UFJ by 8.6 percent and Mizuho Financial by 9.5 percent.
The main market gauges in Australia and New Zealand gained 2.9 percent and 1 percent, respectively. In South Korea, the Kospi index gained 2.4 percent, the Taiex index in Taiwan rallied 1.2 percent, and the main index in mainland China rose 3.2 percent.
In Hong Kong, the Hang Seng index rose 3.25 percent, with banks among the biggest gainers: HSBC and Standard Chartered, both of which had fallen sharply Friday, gained more than 4 percent each.
Only Singapore dropped. The Straits Times index sagged more than a percent as the market, which was closed for a public holiday Friday, played catch-up with the broad declines at the end of last week.
On the foreign exchange markets, the euro gained, touching $1.5040 and the pound weakened as some investors worried that the potential damage that problems in the U.A.E. could have on Britain’s financial sector.
The yen — which usually gains in times of uncertainty, as it is seen as a safe haven — eased back slightly against the U.S. dollar and euro, yet another signal that confidence was returning. By mid-morning in Europe, it traded at around Ą86.4 per dollar, and Ą130.0 per euro.
“On the global scale, this episode will likely be remembered as a local or regional one and a buying opportunity for risk assets elsewhere,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.
Bettina Wassener reported from Hong Kong
Source: New York Times
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