November 27, 2009
Dubai's sovereign-wealth woes could mean U.S. market correction, 'firesale of prime properties from London to New York'
CNBC’s “Squawk Box” opens at 6 a.m. by warning of “reigniting worries of a global financial turmoil,” and the possibility of big “downdraft” in U.S. markets.
Reuters, DUBAI/TOKYO: “Investors recoiled from risky assets on Friday and dumped shares in Asian banks and builders, fearing a Dubai debt default could reignite the financial turmoil of the credit crisis. Stocks from Tokyo to Mumbai were haunted by suspicion of lenders' exposure to Dubai firms that built islands in the Gulf, planned cities from Pakistan to Africa and fashioned the financial hub of the world's biggest oil exporting region. Dubai, part of the oil-exporting United Arab Emirates, said on Wednesday it would ask creditors of state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt as a first step toward restructuring.”
Good Friday morning. It could be Black Friday for more than retailers. While we were focused on turkey and football, markets around the world took a licking following Wednesday’s announcement by Dubai that it couldn’t pay debts of Dubai World, one of the globe’s biggest sovereign wealth funds. The possibility of default created panic in markets, with many sell-offs around 3%. The story sneaked up on many revelers in the U.S., buried on page B3 of the Thanksgiving Day New York Times “(Dubai Asks for Stay on Debt Payments”). Now, Treasury, the West Wing and the Street are paying close attention to the potential fallout.
TRADERS FEAR THIS IS MORE OF A DOMINO THAN A BLIP. The concern is less the size of the potential default than the specter of global credit contagion. The reaction shows that despite early signs of global recovery, the markets suspect there’s another shoe to drop. Here’s a speed read of the coverage as Americans head out to door-buster sales:
THE PSYCHOLOGY -- FT banner – “Dubai sends markets into turmoil”: “Stock markets around the world were convulsed yesterday as investors scrambled to understand the implications of Dubai World’s restructuring and unexpected debt standstill. The lack of information about Dubai’s flagship government-owned holding company, made worse by a religious holiday in the Middle East, prompted indiscriminate selling of stocks linked to the region. The cost of insuring against default in emerging markets around the world also leapt. ‘In the absence of definitive information, it’s hard to see the market treating this as an isolated one-off,’ said one trader.”
THE FRENZY -- DRUDGE banner, with photo of Dubai’s palm islands: “DUBAI IN DEEP WATER.” The (London) Times banner: “Dubai in deep water”: “Fears of a dangerous new phase in the economic crisis swept around the globe yesterday as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill. According to a senior government official, Dubai’s crisis is regarded as modest and manageable for Britain, but there were growing fears that Abu Dhabi, the oil-rich neighbouring emirate that has in the past given rescue loans, would leave Dubai to its fate.”
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REAL-ESTATE FALLOUT – FT p.1: “Real-estate investors are preparing for a firesale of prime properties from London to New York should Dubai decide to raise cash by selling liquid assets held by its investment companies … Istithmar, the investment arm of Dubai World, was one of the busiest investors in ‘trophy’ properties during the global property boom. Its investments range from the Adelphi in Strand, London, and Grand Buildings in Trafalgar Square to the Mandarin Oriental hotel in New York.”
“US MARKETS BRACING FOR SELLOFF ON WORRIES ABOUT DUBAI’S DEBT” CNBC. “Market Insider” column, by Patti Domm: “US markets are bracing for a shakeup Friday after investors fled risk assets globally on concerns about Dubai's debt rescheduling. Markets worldwide reacted to concerns about bank exposure to the debt, particularly in Europe, and fears it is a signal of greater problems in emerging markets. The news comes as investors are closing out the year, many with sharp gains. It also comes at a time when there's been heavy buying by funds and others seeking the comfort of US treasurys. The Dubai story was the topic of concern Wednesday but many traders made an early exit ahead of the holiday and stocks traded quietly.”