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Friday, November 27, 2009

Is the other shoe dropping?

Global stock markets fell overnight after one of Dubai’s state-owned holding firms shocked the financial world with a debt default request.

Dubai World, saddled with a $59 billion debt, on Wednesday asked creditors to defer payments for six months. Its subsidiaries include Nakheel, the construction firm famous for making country-shaped islands, and DP World, owners of five port terminals in India.

The Financial Times called it a “bombshell”. London and Frankfurt stocks fell 1.86 and 1.80 per cent, in the Asian markets’ footsteps. European banks hold $40 billion worth of Dubai World debt. The US markets were closed yesterday thanks to the world's biggest turkey-slaughter (aka Thanksgiving) and we'll have to wait for Wall Street's reaction until tonight.

Credit rating agency Standard & Poor’s said Dubai World’s announced plans to restructure its debt “may be considered a default”. The default and tighter Chinese lending contributed to the fall. “But Dubai is bigger,” said David Morrison of financial risk firm GFT.

Dubai World’s woes raised concerns about the economic state of Dubai, the Persian Gulf’s financial and trading centre. Dubai would take a decade to recover from the loss of investor confidence, said analysts. Dubai World lost heavily when real estate prices crashed last year.

Turning oil money into indoor ski slopes in the desert is proving to be a bit of a disaster! A case of post-Lehman jitters? You bet! The GFC isn't over yet!

And which is the other shoe? Well, it may be a Chinese sandal! Many commentators are voicing their concerns about China being the world's biggest bubble. Jim Chanos, the billionaire hedge fund manager, believes China is heading for a crash, and is calling it "Dubai times a thousand, if not times a million".