Dubai debt problems reality check for market, warns F&C

27 November 2009 3:38 pm | By Lee Jones

Markets around the world dropped this morning after Dubai, an emirate state of the United Arab Emirates, revealed it was delaying payments on £37bn of debt borrowed for property developments in the city.

F&C says the shocks are a reminder that the markets are still fragile and the bull-run since March of this year should not be relied on.

F&C director of UK strategy at Ted Scott says: “We still have not had a significant correction since the bull market started in March. Stocks with higher risk appetite and beta had strongly outperformed and these included financials, especially banks. Banks were already discounting a sharp recovery in earnings not just in 2010 but also 2011 and, therefore, from a valuation perspective, were overdue a pull back.”

Scott says the news of Dubai’s debt problem has come as a “salutary reminder” that the risks in asset markets are still high.

He says: “The Dubai debt story is a welcome reality check for equities and, while shares still represent a preferred asset class, within the market there remains better value in good quality defensive and growth companies.”

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