Gulf Markets Take Breather From Dubai Debt Crisis

GULF stock markets steadied on Wednesday after heavy losses in the previous two days, in the absence of fresh developments in the Dubai debt crisis and as the UAE markets were closed.

Qatar’s Doha Securities Market added more than 350 points to close 5,3% higher, regaining most of the losses it sustained on the previous day when it plunged 8,3%. The DSM index still closed below the
7 000-point psychological barrier at
6 949,19 points. However, it surpassed the end-2008 close of 6 886,12 points. All four sectors made gains, led by banks after several lenders said they were not exposed to the Dubai debt crisis.
The Kuwait Stock Exchange closed at 6 650,80 points, down 1,4% to a nine-month low after fluctuating sharply at the start of trading. The market plunged 2,7% on Tuesday on fears of the impact of Dubai debt problems on Kuwaiti firms.
Only the insurance firms were higher while the remaining seven sectors dropped, including the leading banking sector which lost 0,75%. Investment firms dropped 2,3%.
The market also fell under pressure from news of a case of suspected fraud involving Agility Logistics, a market heavyweight, and reports that Indian state-owned telecom company BSNL has suspended a plan to purchase a stake in Zain Telecom.
The tiny Bahrain Stock Exchange, which reopened on Wednesday after a six-day holiday, eased just 0,12% amid quiet trading. Kuwait and Bahrain markets are the only Gulf bourses to be trading below their 2008 close. The stock markets of Saudi Arabia and Oman are still on holiday, while the bourses of Dubai and Abu Dhabi are closed for the United Arab Emirates national day.
The Dubai market shed 12,5% of its value and Abu Dhabi lost 11,5% in two days of trading following the Dubai World announcement last week that it was seeking to suspend payment of some of its US$59 billion of debt.
Fears of a dangerous new phase in the economic crisis had swept around the globe last week as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill.
Shares plunged, weak currencies were battered and more than US$23,3 billion was wiped from the value of British banks on fears that they would be left nursing new losses.
Nervous traders transferred the focus of their anxieties from the risk of companies failing to the risk of nation states defaulting. Investors owed money by Mexico, Russia and Greece saw the price of insuring themselves against default rocket.
Although the scale of Dubai’s debts is comparatively modest at $80 billion, the uncertainty spooked the markets, with no one sure who its creditors are. Several banks rushed out statements to reassure investors that their exposure was small.
The FTSE 100 plunged by 171 points to 5 194 — its biggest one-day fall in eight months in one of the most jittery days in the financial markets since the depths of the banking crisis.
The Treasury, the Bank of England and the Financial Services Authority were monitoring events closely and are demanding figures from UK banks on their loan exposures to Dubai.
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.
Dubai World, the state-owned corporation that began the panic on Wednesday last week by demanding a standstill on its interest payments, worsened the mood when it postponed a teleconference for its bond holders, saying the phone lines were overwhelmed.
Gerard Lyons, chief economist with Standard Chartered, said: “The market reaction shows how vulnerable some economies are to the aftermath of the debt binge. This highlights how fragile confidence is.”
The Eid al-Adha religious holiday in the Middle East, and the closure of financial markets in the United States for Thanksgiving, exacerbated the sense of uncertainty in markets that were open for business.
A computer crash at the London Stock Exchange, which by coincidence is 21% owned by the Dubai government, left dealers unable to trade for three and a half hours.
Shares in HSBC slumped by five percent, wiping US$10 billion from its value.
According to the United Arab Emirates Banks Association, HSBC has US$18,3 billion of loans outstanding to the UAE, of which Dubai is one of seven emirates. HSBC declined to comment.
More than US$4,3 billion was slashed from the value of Barclays, while Lloyds and Royal Bank of Scotland, both partly owned by the taxpayer, saw their values fall by $2,8 billion and $2,5 billion respectively.
One analyst said that the fears were overdone because Abu Dhabi would eventually come to the rescue to save the UAE from embarrassment. Dubai World has liabilities of US$60 billion, about three quarters of Dubai’s total state debt. Its subsidiary Nakheel built The Palm Islands development, but the property bubble in the emirate burst a year ago, leaving buildings unfinished, debts unpaid and paper fortunes erased. –– AFP/Times Online.

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