Dubai Jitter Across Countries And Investment Avevnues –What, Why, How And Whats Next

Vinit Tulsyan http://vinittulsyan.wordpress.com

1 Dubai Fears – Collateral Damage… A catalyst for Market Re-Pricing – Time to Move On…

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Collateral Damage across countries with all investment avenues Oil, gold, currencies(except USD due to flight to safety), metals, equities, REITs etc

Global markets hit by fear about Dubai crisis

Oil falls below US$ 74 amid Dubai debt default fears

Dubai fears hammers Asian Banks and builders

YEN surges to 14 year high against US$

A catalyst for market pricing: Something had to come; some trigger had to come to

pull the market down, and it came but in my opinion this is not a beginning of a crisis,

but a kind of after adjusted effect to the crisis which was there before March 2009.

Dubai Fears – Collateral Damage...A Catalyst for Market Re-Pricing

Time to Move On…



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Time to Move On…



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Time to Move On…

http://vinittulsyan.wordpress.com





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Basically in my opinion markets across countries and investment avenues has started

to feel uncomfortable to this huge liquidity which has made its ways to all asset

classes across all emerging markets.

Now is the time when the investors will start looking at fundamentals, which in my

opinion will push the market higher

One thing this crisis has further ensured that all the debate going on about

withdrawing stimulus (mainly in emerging markets will take a pause for not,

pushing equities even higher)

In my opinion, going forward (may be beginning of next year), INFLATION remains

the biggest risk to our Indian market, and I firmly believe ‘INFLATION’ has the ability

to kill any bull market rally in equities (which currently is undergoing). Inflation is a

dangerous word and with the ease Central Bank of India induced liquidity (in all

forms i.e., Fiscal or Monetary) following world economic crisis, am sure the pace of

withdrawing these will not be similar to the face at which these were induced, but

still with the kind of expectation about INFLATION, market participants are having, I

feel this will prove to be a dampener in equity market rally going forward (not

now).

What happened?

On Wednesday, 25 November,

the government of Dubai said

that its investment holding

company, Dubai World, which

owns a vast portfolio of

businesses worldwide, is being

"restructured" with immediate

effect. The objective of the

restructuring is to "address

financial obligations" and

"ensure the continuity" of the company's operations. The government also announced that

it will ask all creditors of Dubai World to agree to a debt "standstill" during the restructuring

and to extend maturities to "at least 30 May." The announcement is not a default yet

because payment is only due on 14 December 2009 of a bond held by one of Dubai World's




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subsidiaries (see below). But, the announcement has already led to a rise in CDS spreads and

resulted in multiple-notch downgrades overnight of several Dubai-based entities by S&P's

and Moody's. (Source – UBS)

Snapshot of the United Arab Emirates;small countries combined together

The story is not going to go away easilyand immediately…

The story is not going to go away easily and immediately… Do not know from where thenext bomb would be dropped?

W orld's Biggest Debtor Nations

Country GDP (2008) Gross External Debt (US$) External Debt (GDP%) External Debt /Capita

United States $14.26 trillion 13.4 tn. (2009 Q2) 94.3% $43,793Hungary $196.6 billion 207.9 bn. (2009 Q1) 105.7% $20,990Australlia $800.2 billion 891.3 bn. (2009 Q2) 111.3% $41,916Italy $1.823 trillion 2.3 tn. (2009 Q1) 126.7% $39,741Greece $343 billion 552.8 bn. (2009 Q2) 161.1% $51,483Spain $1.403 trillion 2.4 tn. (2009 Q2) 171.7% $59,457Germ any $2.918 trillion 5.2 tn. (2009 Q2) 178.5% $63,263Finland $193.5 billion 364.9 bn. (2009 Q2) 188.5% $69,491Sweden $344.3 billion 669.1 bn. (2009 Q2) 194.3% $73,854Norway $275.4 billion 548.1 bn. (2009 Q2) 199.0% $117,604Hong Kong $306.6 billion 631.1 bn. (2009 Q2) 205.8% $89,457Portugal $236.5 billion 507.0 bn. (2009 Q2) 214.4% $47,348France $2.128 trillion 5.2 tn. (2009 Q2) 236.0% $78,387Austria $329.5 billion 832.4 bn. (2009 Q2) 252.6% $101,387Denm ark $203.6 billion 607.4 bn. (2009 Q2) 298.3% $110,422Belgium $389.0 billion 1.2 tn. (2009 Q1) 320.2% $119,681Netherlands $672.0 billion 2.4 tn. (2009 Q2) 365.0% $146,703United Kingdom $2.226 trillion 9.1 tn. (2009 Q2) 408.3% $148,702Switzerland $316.7 billion 1.3 tn. (2009 Q2) 422.7% $176,045Ireland $188.4 billion 2.4 tn. (2009 Q2) 1267.0% $567,805Source: CNBC (http://www.cnbc.com/id/30308959/)

Dubai World (debt maturity schedule)Entity Maturity Date In BillionNakheel 14-Dec-09 $3.5Limitless 21-Mar-10 $1.2Nakheel 13-May-10 $1.0Dubai World 19-May-10 $2.1Nakheel 11-Jan-11 $1.2Dubai World 19-Jun-11 $2.4Palm District Cooling 20-Jul-11 $0.5Port, Free Zone World 29-Sep-11 $1.0Dubai Drydocks 11-Oct-11 $1.7

$14.6Source: CNBC

Total


http://www.cnbc.com/id/30308959/



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Global Islamic Bond Issuance

Source: CNBC, Deallogic

Investment/Loan scattered across banks

Markets to become more global (closely following each other)

My conviction over no countries being de-

coupled (barring USA, which provides the

direction to world markets rather than

following them) in today’s’ world gets

stronger following this DUBAI CRISIS. And

this leaves emerging markets in more of

weaker spot. Every time debate grows over

emerging markets leading the global

markets out of the global economic/financial meltdown, some events arises, which takes a

toll on this debate.

Though INDIA & CHINA is to a larger extent insulated from these events, but this globalized

world does not leave any one and this is evident from the financial markets crash over the

last two days i.e., Chinese main index Shanghai Composite down over 6% and India’s NIFTY

down better than 3%.

The Potential Risk (Commercial RE) BUT am confident that there is nothing material in it…

After the financial crisis following CDS bubble in housing market and then subsequent

downturn in all parts of economy, many have been raising fear since last few months that

Largest Foreing Banks invested in UAE (Loan 2008)Sr. No. Bank In Billion

1 HSBC $17.02 Standard Chartered $7.83 Barclays $3.64 Royal Bank of Scotland $2.25 Arab Bank $2.16 CITI Group $1.97 Bank of Baroda (India) $1.88 Bank Saderat Iran $1.79 BNP Paribas $1.710 Lloyds Banking Group $1.6

Total 41.43Source: CNBC

Change in Sovereign CDS Levels in last 2 daysCountry Current WED. CloseAbu Dabhi 185.0 138.8Dubai 675.0 435.0Lavita 616.3 500.0Ukraine 29.4 28.5Source: CNBC - Note: CDS - Credit Default Swap




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though housing market might have bottomed out in US, employment beginning to

stabilize (as reflected through jobless claims – a more leading indicator), decent reporting

by retail companies, a revival in technology sector with tech companies leading this revival,

increased M&A activities etc., one area which market participant feel is still not out of

woods is “COMMERCIAL REAL ESTATE”, and the next downturn will be led by a bust in

commercial market. Though I feel (am not an expert on commercial real estate either in

US, Europe, Middle East or emerging markets), if any bust kind of scenario had to happen,

which could have a ripple effect across markets and investment avenues for a longer

period of time, it would have happened during Oct’08 – Mar-09 (the worst time for

economies, companies, financial markets across globe), when things were just not UGLY

but turned UGLIEST. My view is more based on the PSYCHOLOGICAL aspect because of the

fact that things were just too bad during those six months, when liquidity was not there,

people were trying to find a faulty point out of any good news coming to markets. I just do

not think that things can worsen any where closer to the levels prevailing during those

times.

Markets finding optimism within Dubai pessimism

October 2009 – March 2010 (the worst ever period for all investment avenues, countries,

corporate world around the globe) is over, and during these period, thing were just not

ugly but turn ugliest where everyone tried to first find the bad news out of any good news,

which came during these period.

Now things have drastically turned and “OPTIMISM” is the word which has taken thecentre-stage, and now everyone is trying to find good stuff out of this bad news, which is:

This amount of total Dubai debt component is just miniscule (from a broader

perspective)

This debt exposure are scattered across banks with European banks leading the pack,

so there is no chance of any major financial institution going bust due to this crisis.

Abu Dabhi will come to Dubai rescue as it has done a number of times in the past,

though this time around Abu Dabhi is scouting for a hard bargain and one in my




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opinion this time it will just not be routine rescue but a lot of collateral will be

exchanged for this rescue.

Going Forward…

I believe markets would forget this story in a day or two and this story will again be in focus

around 14th December 2009, when a US$ 3.5 billion payout is due from NAKHEEL. Now is the

time, in which I believe that no country or major financial institution (TOO BIG TO FAIL,

though the debate on too big to fail will continue) is going to go bust, and even if there are

symptoms of these, a larger concentrated and coordinated move will be taken by respective

countries. This belief stems from my confidence that no country and political party would

just want to spoil the credibility (due to PESSIMISM turning in OPTIMISM since the crisis

occurred) they have been have to gather. And they know that any event of such kind could

well have a catastrophic effect across financial markets and the credibility or the optimism

which was built over last 1 year would not even take seconds/hours to fade away.

I remain confident that Markets (EQUITIES, OIL, COMMODITIES, and GOLD) would be higher

than today’s level by the time December is over and we start New Year on the back of

starting of capital expenditure cycle by corporate world around the globe. As inventories

goes down, new capacity additions takes place, employment number starts looking better,

retail consumptions returns to normalcy, all these will support the financial market around

the globe.

Though the same cannot hold true for USD, which in my opinion will continue its slide but

the slide would be drastic against other major currencies i.e., POUND, EURO, YEN etc. due to

the similar deficit situation prevailing in European Zone, Japan as it is in USA. One thing I am

absolutely confident about the DOLLAR will depreciate drastically against CHINESE YUAN (if

china allows its currency to be re-valued) due to not so bad fiscal imbalance in China. In

Indian context, Indian Rupee might appreciate but not by a large magnitude due to larger

fiscal imbalances in INDIA (in comparison to CHINA).

Thanking You,Warm Personal Regards,Vinit Tulsyanhttp://vinittulsyan.wordpress.com/


Economy & Finance

Dubai Jitter Across Countries And Investment Avevnues –What, Why, How And Whats Next