Monday, November 30, 2009

Dubai: looking backwards and forward

There seems to be a mixed reaction to Dubai news across global markets today.

Japanese shares closed higher on hopes that Dubai problems would not spread, while European shares closed lower Monday (likely due to fears over European banks' lending exposure to Dubai), and Dubai's benchmark index closed down 7.3 %.

Here in America, the major averages are still negative on the day, though the Dow and S&P 500 are climbing back towards neutral territory at 2:10 EST. As the NY Times points out, Wall Street is still trying to gauge the likely fallout from Dubai, along with the underlying meaning (if any) of post-Thanksgiving retail shopping figures.

"Wall Street shares fluctuated on Monday as investors gauged the fallout from Dubai’s debt crisis and weighed results from the first weekend of holiday shopping...

...But traders on Monday seemed more focused on the situation in Dubai, where Dubai World, the emirate’s investment arm, said last week that it would not be able to make on-time payments for some of its $59 billion in debt.

That rattled the markets Thursday and Friday, but on Sunday, the central bank in the United Arab Emirates tried to reassure investors by pledging to make extra financing available to all banks in the country, including foreign institutions with local branches.

Uri Landesman, head of global growth at ING, said investors saw danger in the potential ripple effects to other developing economies, even if American banks are not affected."

Judging (correctly) that the Dubai story would continue to be a big concern heading into this week, Gregor Macdonald and friends spent a fair amount of time on this topic in last Sunday's MacroTwits hour on Stocktwits TV. Here are a couple of interesting articles on Dubai that were shared in that macro discussion.

The first is a December 2008 Bloomberg article that I dug up from an old blog post. If you read through this year-old piece on Dubai's bursting real estate bubble, you'll notice many of the key names (Nakheel, Emaar Properties) and themes (a debt fueled building boom) which have figured so prominently in last week's Dubai World debt story.

The second is an article from The Independent shared by Gregor Macdonald called, "The Dark Side of Dubai". As those who kept up with the Dubai story this decade will probably guess, the piece focuses on the reportedly near slave-labor conditions that supported the rise of Dubai and the environmental and social problems which have accompanied it. It's a long piece, but definitely worth a look.