A possible debt default from Dubai has recently shocked the financial markets around the world. Dubai is the most populous state of the United Arab Emirates.
Dubai “said on Wednesday it would ask creditors of state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt as a first step towards restructuring” (CNBC). Dubai has a bond maturity it has to pay on November 30.
Just as we thought the green shoots were growing exponentially, Dubai has shown us that not much has changed. European and Asian markets have responded to the incident by trading down by over 3% on average.
The panic comes from the fact that banks in Europe and Asia may have substantial exposure to Dubai. Given that most of the banks in Europe have barely recovered from the crisis last year, a hard hit from sovereign debt defaults could create problems.
The financial rating agencies Standard and Poor’s and Moody’s have decided to downgrade the Dubai debt after the country released it’s statement asking for a debt restructure. Not quite what you would call ‘ahead of the curve’. [You can find the two statements here: S&P, Moody's.]
Dubai is not the only country on fire. The Greece stock market was down by around 7% on Thursday and their credit default swap widened by 212 basis points. It seems like all the problems from Eastern European countries may be popping back again in the world stage as Dubai takes the lead.
Buying the dollar against the yen at 86.00 seems like a good idea to me.
And things just got exciting again…
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