Asian markets shake off jitters over Dubai woes
Investors breathed a collective sigh of relief yesterday as Asian financial markets roared back to life on growing consensus that Dubai's financial woes were not enough to derail the region's economic recovery.
The Hang Seng Index surged the most in four months, climbing 687 points or 3.3 per cent to 21,821.5. Japan rose 2.9 per cent while South Korea gained 2 per cent and Australia added 2.8 per cent.
Currencies and commodities also bounced back. The Australian dollar jumped 1.4 per cent against the US dollar in late trading, while the Korean won rose 0.96 per cent and Singapore dollar edged up 0.34 per cent, according to Bloomberg data.
'After people realise the problem has been contained, the risk premium will reverse back to the norm again,' said Desmond Tjiang, the chief investment officer for Asia, excluding Japan, at Fortis Investments.
'In a couple of days, people will forget about Dubai and talk about Asian [economic] growth.'
Global financial markets tumbled into a tailspin last week after Dubai announced that its investment arm would need more time to pay back its loans.
Stocks, currencies and commodities plummeted across the board as investors speculated whether the news would spark another wave of the financial crisis.
In response, the central bank of the United Arab Emirates said that its banking system was sound and it pledged to make extra liquidity available to domestic lenders.
Policy support should be enough to contain Dubai's financial problems and prevent them from turning into something more serious, Macquarie equities researchers including Michael Kurtz wrote yesterday.
'The underlying Dubai World event represents less a sea change in the global financial risk and return environment than a highly visible one-off event,' Kurtz said.
And the extent of Dubai's problems did not seem to worsen during the weekend. That prompted Asian investors to plough back into the markets yesterday, taking advantage of discounted prices following last week's sell-off.
The Hang Seng Index's advance pushed it back into the black for November. It finished the month up 0.32 per cent for its eighth gain in the past nine months.
'No one thinks there aren't challenges ahead and really how many Dubais could the market stomach?' said Patrick Bennett, a foreign exchange strategist at Societe Generale. 'But until evidence to the contrary, risk-taking is going to remain ascendant.'
Regional banks and construction companies only have a small exposure to the UAE. Any disruption to their businesses there is not expected to drag down overall earnings.
Markus Rosgen, the head of Asia-Pacific equity strategy at Citi, said fallout from Dubai should be limited to Middle Eastern markets.
He added that regional markets would slow next year as momentum from this year's recovery tapered off. However, markets might still have a 9 to 14 per cent upside.
Dubai's benchmark stock index plummeted 7.3 yesterday and Abu Dhabi's was down 8.3 per cent. The two markets were shut for public holiday since last Thursday.
European markets were also trading lower late yesterday.
Additional reporting by Maria Chan
Mighty fall
Dubai's benchmark index plummeted 7.3 per cent yesterday
The Hang Seng Index finished the month higher by: 0.32%
