Wednesday, December 2, 2009

Dubai scare -- an opportunity or a threat ?

(FinanceAsia)Everyone thought Dubai was past its debt problems after Abu Dhabi bailed out the leveraged emirate last February. Everyone was wrong.

Last Wednesday, the government of Dubai asked Dubai World's creditors for a standstill agreement on interest payments on the company's $59 billion in debt. Government-owned Dubai World controls many of the emirate's corporations, including DP World (the world's fourth largest port operator), Emaar (developer of the 160-storey Burj Dubai) and Nakheel (developer of the Palms).

"Dubai, with sparse oil reserves, built its fortunes on real estate and financial services in recent years, borrowing heavily to finance mega projects, including three man-made islands shaped as palm fronds," said John Sfakianakis, chief economist at Banque Saudi Fransi. "Dubai was above all an interesting real estate play that benefited the early entrants, but which turned out to be a bubble that burst."

This latest development is in sharp contrast to what analysts said in February after the central bank of the United Arab Emirates (UAE) stepped in to underwrite the first $10 billion tranche of a $20 billion bond programme to shore up Dubai's debt. Back then, analysts said the worst of Dubai's problems had past and that the support by the central government was "unequivocal".

When I made a small highlight about Vietnam stock market was down and in a bear market territory, it's a signal of beginning of corrections for emerging markets. Dubai scare should not come as a surprise since they have been on top of the world, building tallest building to tell the world that they are the greatest. They feel they are invincible as they got a lot of wealth(ass-u-me government will bail them out). Everytime you think like that, just like the person build the Petronas Twin tower, the mighty will be grounded. Dush!, falling hard.

Now the global lumping effects will spread, label anything to do with emerging-property assets as high risk unjustifiedly: look at property counters like UEM Land, SP Setia, etc...... I see an opportunity to pick up a few of them for short term trade, do you?

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