By: Mike Campbell
The global economic crisis was caused by a lack of confidence in the financial sector about bad loans and risky investments which was typified by the sub-prime debacle. The markets and the global economy are still in the process of getting their nerve back. This explains why the over-exposure of a state-backed company in the tiny Gulf state of Dubai is having a substantial negative effect on Asian and European stock markets.
Dubai World has been at the heart of ambitious projects to boost tourism and trading activities within the Emirate, including the creation of three palm-shaped islands off Dubai. The company had liabilities of $59bn in August and has moved to delay paying its debt whilst the company restructures. In a world where confidence is in short supply, the move caused European markets to shed more than 3% of their value on fears that Dubai World’s difficulties might spark another round of the financial crisis. Asian markets have reacted even more strongly with the Hang Seng dropping by almost 5%.
The US Dollar has continued to devalue against the Yen in recent months. At yesterday’s close 1$ would buy 86.7 Yen. The Japanese finance minister, Hirohisa Fujii, has said that a strong Yen is harmful to the economy, but has so far resisted the temptation to intercede in the market. With most of the major economies firmly focused on their domestic needs, it seems unlikely that there will be any co-ordinated effort to sell the Yen. Indeed, the US seems to be unconcerned about the Dollars current decline, so it may be left to the market to fix exchange rates; at least in the shorter term.
Dubai World’s Debt Problems Hit European Stocks Confidence
DailyForex.com