Gulf markets may plunge on Dubai debt woes
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Last Updated: Sunday, November 29, 2009, 21:40
Dubai: Dubai's shock alert of possible debt default will send Gulf markets plunging when they reopen this week after a four-day break, with Dubai and Abu Dhabi worst hit, economists predicted on Sunday.

The central bank of the United Arab Emirates said it is providing banks with extra liquidity, stressing its support to the banking sector after state-owned conglomerate Dubai World asked to suspend debt payments.

But until the UAE stock exchanges reopen on Monday it is uncertain to what extent investors will be reassured by the central bank's statement.

"I expect to see a drop in Dubai's market when it opens Monday... a minimum of two-three percent," Saudi financial analyst Ali Daqaq said to a news agency.

Dubai stock market rules limit the index to a change of 10 per cent in one day.

"The banking sector will be the hardest hit, due to exposure to loans, and the danger of default on this debt," he said, speaking before the central bank pledged support for banks.

All Gulf stock markets have been on holiday since Thursday for the Muslim feat of Eid al-Adha, sparing them an immediate impact from Dubai's announcement that it will seek a six months freeze on debt repayments at Dubai World.

The news sent jitters throughout Asian and European stock markets on Thursday and the US market on Friday as investors feared a possible default by Dubai and its quasi-state corporates -liable for some 80 billion dollars.

Some economists say the delay in the reaction by Gulf markets because of Eid might reduce the severe impact on those bourses.

"Market fundamentals say that the local market should be negatively affected by the announcement, especially banks and real estate stocks," said Emirati economist Nasser bin Ghaith.

"The reaction by the global markets was psychological, and came strongly. I expect the reaction here to be less hard because the first shock was absorbed by the global markets," he said to a news agency.

He also pointed out, however, that the size of the stock markets in Dubai and Abu Dhabi is small, with few players. "Manufactured trends could dictate the move of the market," he warned.

Dubai and Abu Dhabi will be the only Gulf stock markets to open tomorrow, while Kuwait's follows on Tuesday. Saudi Arabia's financial market - the largest Arab bourse in capitalisation, will remain on holiday until Saturday.

The markets of Dubai and Abu Dhabi will have only two days of trading to react to the new announcement before they go again on holiday until Sunday December 6 for the national day.

Gulf investors outside the UAE are worried about contagion from Dubai's problems.


First Published: Sunday, November 29, 2009, 21:40

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