Nerves ease on markets as sheikhs talk up confidence

Hugo Duncan
1 Dec 2009

Global stock markets rallied today after the ruler of Dubai accused international investors of misreading the situation in the debt-ridden emirate.

“They do not understand anything,” said Sheikh Mohammed bin Rashid Al Maktoum in his first public comments since the debt crisis erupted last week. “We are strong and persistent.”

Sheikh Khalifa bin Zayed Al Nahyan, ruler of neighbouring Abu Dhabi and president of the United Arab Emirates, also broke his silence to declare that the UAE economy was in “good” condition despite Dubai's problems.

It came as Dubai World, one of Dubai's flagship companies at the centre of the crisis, revealed it was looking to delay repayment on $26 billion
(£15.6 billion) of debt — far less than feared by investors.

The comments helped steady stock markets from London to Shanghai.

“That reduces some of the panic that has built up over the past few days,” said Nick Chamie, an analysts at RBC Capital Markets.

The FTSE 100 index was up 87.91, or 1.69%, to 5278.59, having fallen more than 1% yesterday. Leading indicies in Paris and Frankfurt rose more than 2%. This followed strong gains in Asia this morning and a late rally on Wall Street last night.

However, stock markets in the Middle East were on the slide again, with Dubai down nearly 6%%, Abu Dhabi off almost 4% and Qatar falling 8.5%
Suki Mann, a strategist at Société Générale in London, said: “The fallout from the Dubai situation and the overall contagion effect should be both short-lived and quite limited.”

Shares around the world were also boosted by strong economic figures from China where manufacturing output grew at its fastest pace for five years.

Dubai last week stunned investors all over the world when it said it needed to delay debt repayments which rating agency Moody's today estimated could total $100 billion.

It triggered the biggest stock market slump for three months in Asia and Europe's worst rout since April.

Dubai last night effectively abandoned Dubai World — which owns a majority stake in DP World, the parent company of P&O, the Turnberry golf course and a host of other Western businesses — by saying the government would not guarantee its debts.
However, with Dubai World holding “constructive” talks with its lenders, confidence is returning to markets.

City commentator David Buik said it was now clear that the Dubai crisis was “a serious blip, but only a blip”.

Anthony Grech, market analyst at
IG Index agreed. “Things seem like they are settling back into a routine” following the debacle in Dubai,” he said.

US markets looked set to open up on Wall Street tonight.

Oil rose towards $80 a barrel as concern about the Dubai debt problem eased. It was up 74 cents a barrel to $78.02 in New York and 67 cents to $79.14 in London.

The price was also driven higher by tensions between Iran and the West after Iran seized five British civilian sailors whose racing yacht drifted into its waters.

MF Global analyst Edward Meir said: “The apparent easing in the Dubai World debt problem could allow Iranian geopolitical concerns to dominate sentiment more decisively.”