The default indication of Dubai World (DW) brings a shocking effect to the worldwide financial sector. This condition may trigger some other financial chaos in several active financial and investment markets in the world. Several hours ago, the Europe market was the first one that felt this uncomfortable bump. And now, approximately 6 hours after the announcement of the disastrous default, it's Asia's turn to feel the shocking bump in its financial climate. This could be an early warning to something bigger and should be taken quite a serious attention.
Who's Dubai World?
Suffice it to say, DW is the locomotive for the vast development of Dubai. It is practically an investm
ent company that works for the interest of the Dubai government. It holds quite a significant portfolio of business and projects which covers literally the whole world. It holds an extensive property investments in the US, UK and South Africa. From foreign perspective, DW controls the so called sovereign wealth fund, defined as an investment fund owned by a government of a state. So we can imagine it as an investment company owned by the government of Dubai.
DW holds quite a significant influence for the financial markets, and real sector in turn, in countries where its investment lays deep and abundant. The reason for this condition is that the investment has become some kind of a foundation for forming the economic movement in the economy it resides in. Once it has given itself a steady position, the investment owner has the soft control to trigger a stroke toward the financial market. As we all know, financial sector has a unique role in controlling the economy since it literally moves the market based on rumors that often creates critical decisions arise from business practitioners in the real sector. That way, we can see how a tiny itch on the chairman's shoulder, or even a change in his mood may cause the economy in some other part of the world scream in panic.
Potential Crisis
The announcement made by the the authorities of Dubai on Wednesday, November 25, 2009, that it would try to find alternatives in rescheduling its sovereign wealth fund held by DW has clearly indicated something
bigger. This is due to the fact that at least two of DW's prominent subsidiaries have liabilities that have been nearly due in payment. The two are Nakheel (USD 3.5 billion, due on December 14, 2009) and Limitless (USD 1.2 billion, due on March 31, 2010). DW proposed for a rescheduling for at least up to March 30, 2010. Three-month reschedule is certainly itchy for an institution with a huge resource like DW.
If, in some ways, there are too many who place their investment in DW's debt, this rescheduling announcement can be seen as a short performance made by the institution. And the fact is showing that there are indeed many who placed their investment there. We can see how the Europe, followed by Asian market, reacted to this situation. The latest is the downturn in most of the Asian markets:
First came Europe, then Asia. It's probably too obvious to miss that this needs to be taken a serious concern. The rational reaction for this condition is mostly conservative, setting loose all high risk assets since there is a probability that this may have some links to other potential default. After all, DW funds are too sweet a candy to miss for treatment as an underlying foundation for various derivatives. You can imagine how complex it may be. Therefore, avoiding any multiplier effect is probably the right thing to do.
Positive Hope
Regardless of this storm indication, there is indeed some hope that worldwide investors can rely on. Dubai is part of the Emirates, which consists of more than one wealthy Arab nations. The riches among those states will only too happy to save DW and therefore provide new safety net for worldwide investors, including all the related derivatives. This default announcement and the effect it creates on major markets in the world must already be spotted on investors sensing for quite some time. Hoping for positive thinking, I think there may be some help left for DW. Let's be positive enough that help is on the way.
(Pictures source: www.nazret.com, www.atlasshrugs2000.typepad.com, www.eastasiaforum.org).
Who's Dubai World?
Suffice it to say, DW is the locomotive for the vast development of Dubai. It is practically an investm
ent company that works for the interest of the Dubai government. It holds quite a significant portfolio of business and projects which covers literally the whole world. It holds an extensive property investments in the US, UK and South Africa. From foreign perspective, DW controls the so called sovereign wealth fund, defined as an investment fund owned by a government of a state. So we can imagine it as an investment company owned by the government of Dubai.DW holds quite a significant influence for the financial markets, and real sector in turn, in countries where its investment lays deep and abundant. The reason for this condition is that the investment has become some kind of a foundation for forming the economic movement in the economy it resides in. Once it has given itself a steady position, the investment owner has the soft control to trigger a stroke toward the financial market. As we all know, financial sector has a unique role in controlling the economy since it literally moves the market based on rumors that often creates critical decisions arise from business practitioners in the real sector. That way, we can see how a tiny itch on the chairman's shoulder, or even a change in his mood may cause the economy in some other part of the world scream in panic.
Potential Crisis
The announcement made by the the authorities of Dubai on Wednesday, November 25, 2009, that it would try to find alternatives in rescheduling its sovereign wealth fund held by DW has clearly indicated something
bigger. This is due to the fact that at least two of DW's prominent subsidiaries have liabilities that have been nearly due in payment. The two are Nakheel (USD 3.5 billion, due on December 14, 2009) and Limitless (USD 1.2 billion, due on March 31, 2010). DW proposed for a rescheduling for at least up to March 30, 2010. Three-month reschedule is certainly itchy for an institution with a huge resource like DW.If, in some ways, there are too many who place their investment in DW's debt, this rescheduling announcement can be seen as a short performance made by the institution. And the fact is showing that there are indeed many who placed their investment there. We can see how the Europe, followed by Asian market, reacted to this situation. The latest is the downturn in most of the Asian markets:
- Hang Seng slipped low for 7.1% to 21,134.90,
- the S&P/ASX was down for 2.9% to 4,572.1,
- the Shanghai composite turned low for 2.36% to 3,096.27,
- KOSPI fell 4.96% to 1,524.50,
- the Taipei index 3.21% to 7,490.91 and
- the Thailand index and the Philippine index both were down for 0.78% to 680.37 and 1.45% to 3,044.97.
First came Europe, then Asia. It's probably too obvious to miss that this needs to be taken a serious concern. The rational reaction for this condition is mostly conservative, setting loose all high risk assets since there is a probability that this may have some links to other potential default. After all, DW funds are too sweet a candy to miss for treatment as an underlying foundation for various derivatives. You can imagine how complex it may be. Therefore, avoiding any multiplier effect is probably the right thing to do.
Positive Hope
Regardless of this storm indication, there is indeed some hope that worldwide investors can rely on. Dubai is part of the Emirates, which consists of more than one wealthy Arab nations. The riches among those states will only too happy to save DW and therefore provide new safety net for worldwide investors, including all the related derivatives. This default announcement and the effect it creates on major markets in the world must already be spotted on investors sensing for quite some time. Hoping for positive thinking, I think there may be some help left for DW. Let's be positive enough that help is on the way.
(Pictures source: www.nazret.com, www.atlasshrugs2000.typepad.com, www.eastasiaforum.org).
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