Gulf markets may plunge on Dubai debt woes

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.

PTI



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

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