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Dubai crisis shows market fragility

Experts have warned that reaction to the Dubai debt crisis has highlighted the continuing fragility of the markets.

International stockmarkets were rocked by the news that Dubai World, a firm owned by the Dubai government, was unable to pay out on a £3.18bn Islamic bond. This led to concerns for the future of the United Arab Emirates sovereignty.

Last Friday, the FTSE fell by 1.4 per cent, the Nikkei fell by 1.44 per cent, the Dow Jones fell by 2.14 per cent, the Dax fell by 1.59 per cent and the Cac 40 fell by 0.51 per cent.

The markets of the United Arab Emirates have continued to be affected by the fallout of Dubai World’s debt problems.

After the announcement from Dubai World on November 25, the Nasdaq Dubai fell by 10.29 per cent while the Abu Dhabi Securities Exchange fell by 11.68 per cent. The Dubai government has said it will not stand behind Dubai World, which is restructuring £15.8bn of debt with its banks.

In an interview on Bloomberg TV, Templeton Asset Management chairman Mark Mobius warned that a 20 per cent fall in emerging market shares was “quite possible”.

He said: “I felt that there would be a significant correction in what is an ongoing bull market. If Dubai has to default, that could start a wave of def-aults in other areas.”

F&C director of UK strategy Ted Scott says the shocks are a reminder that the markets are still fragile and the bull run since March should not be relied on. He says: “The Dubai debt story is a reality check for equities.”

PSigma UK growth fund manager Neil Cumming says: “It is difficult to know if Dubai is a solitary domino that has fallen or whether it could trigger others to wobble and even fall.”

Hargreaves Lansdown investment manager Ben Yearsley says: “This was a spanner in the works and things are still fragile. It took a few days for the markets to assess the Dubai problems, which are not that big in the scheme of things, but it was definitely a shock to the system.”


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