United Arab Emirate shares fell sharply overnight as the market reopened for the first time since Dubai called for a delay in repaying $US59 billion in debt last Wednesday.
Stock markets in Dubai and neighbouring Abu Dhabi closed sharply lower; down 7.3% and 8.3% respectively, hit by a lack of buyers after Dubai World’s shock proposal to suspend debt payments.
European markets fell 1%; American markets were cheaper at first, as investors fretted about poor post Thanksgiving retail sales.
But Wall Street finished up by around 0.4%, thanks to late support for financials and commodity stocks. Retailers remained sold-off.
The Dow Jones Industrial Average rose 34.92 points, or 0.3%, to 10,344.84, leaving it up 6.5% for November.
The S&P 500 Index added 4.14 points, or 0.4%, at 1,095.63, up 5.7% for October.Nasdaq gained 6.16 points, or 0.3%, to 2,144.60, leaving it with an advance of 4.9% for the month.
Gulf markets will probably fall further when trading opens later today after the Dubai Government said it would not guarantee the debt of Dubai World as it sought to clarify comments made last week by the state-owned entity that sent shockwaves through global markets.
The UAE markets close again tomorrow and Thursday for the country’s national day, before reopening on Sunday.
Banks and building stocks led declines in Dubai and Abu Dhabi as local investors got their first chance to react to last week’s news that state-owned Dubai World and its main property subsidiary Nakheel wanted banks to delay debt repayments for six months.
Global markets last week tumbled on concerns about the impact of Dubai’s debt problems, but shares in Europe on Friday and in Asia yesterday charted a way back from the steep falls.
Not helping sentiment late in the day were these comments from a Dubai Government official:
"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," said Abdulrahman Saleh, director general of Dubai’s department of finance.
Saleh told Dubai TV that banks did not need extra liquidity and that the market reaction to Dubai World’s restructuring had been overblown.
His comments indicate that the $US59 billion in debt in Dubai World will be sorted out by the company and its bankers, with minimal support from the Government (which owns the group anyway, but doesn’t guarantee the debts).
Dubai made its first announcement last week on the eve of a holiday, sending global markets into a tailspin as investors awaited details of what it would mean for Dubai World’s debt.
The smaller-than-expected declines also followed a pledge by the UAE central bank to provide emerging support to the region’s banks and an offer over the weekend by the oil-rich neighbor, Abu Dhabi, to provide selective support to Dubai companies.
Dubai’s property developer Nakheel, part of the debt-laden Dubai World group, asked for a suspension of trading on three of its Islamic bonds traded on Nasdaq Dubai bourse before trading started.
The bonds are traded on the Nasdaq Dubai, the emirate’s international market, and have a face value of $US5.25 billion.
Nakheel asked for then to be suspended from trade “until it is in a position to fully inform the market”. It gave no indication when that might be.
The property group has a bond of around $US4 billion falling due on December 14.
The Nasdaq Dubai doesn’t limit price falls (the other UAE exchange has a 10% limit), so shares in DP World, the port operator and part of Dubai World, saw its shares plunge 15%.
The UAE central bank has set up a liquidity scheme on Sunday night to help support the local financial sector, especially banks in case they find themselves short of liquidity.
Apart from the Nakheel statement, there were no other communications from the Government ahead of trading started, as promised by spokesmen over the weekend.
In Asia, shares had their best day for seven months as investors piled back into markets.
Not even poor industrial production figures in Japan or South Korea affected sentiment.
The MSCI Asia Pacific Index was up 3.5%, the biggest one day rise since April 2, and the MSCI index of Asia Pacific (excluding Japan) rose 2.7%.
In Australia the ASX200 index ended up 129.2 points, or 2.8%, at 4701.3 points while the All Ordinaries index rose 118.3 points, or 2.6%, to 4715.5 points.
The rebound recovered most of the $38 billion in market value shed during Friday’s 3% fall.
The Australian rally was the largest since April 3.
