Dubai Debt Crisis Derails Asian markets

Hang Seng sink more than 1000 points while Shanghai, Sensex, Sydney drove deeper

Stock market in Asian region slumped in the sea of red on Friday, 27 November 2009, with investor’s pressing heavy sales in financial stocks amid fears of a likely debt default in Dubai.

The U.S. market was closed overnight on Thanksgiving Day holiday. But investors are seen tracking cues from European markets, where stock prices had plunged sharply after Dubai World asked for more time to meet its debt obligations. The mood is so bearish that stocks cutting across several sectors are seeing a fairly massive sell-off.

In the commodity market, crude oil tumbled to a six-week low as Dubai’s attempt to reschedule its debt prompted investors to sell commodities.

On the New York Mercantile Exchange, where markets didn’t settle yesterday because of a public holiday, January U.S. crude futures were trading at $74.36 a barrel, down 4.6% from the closing price on 25 November 2009.

Brent crude oil for January settlement fell $1.47, or 1.9%, to $75.52 a barrel on the London-based ICE Futures Europe exchange at 9:28 a.m. London time. Earlier, the contract plunged as much as 4.3% to $73.7.

Gold dropped the most since January in London as gains in the dollar damped demand for the precious metal as an alternative asset. Gold for immediate delivery dropped as much as $50.28, or 4.2 percent, to $1,138.10 an ounce, the biggest intraday slide since Jan. 12. The metal traded at $1,152.33 by 9:09 a.m. in London.

In the currency market, Dubai debt fear continued to drive investors away from risks, sending Asian stocks sharply lower while Yen soars, taking dollar higher with it. Investors are clearly worried about the risk of contagion effect from Dubai which could trigger second wave in the credit crisis.

Yen accelerates further, making another 14 year high against dollar and rallies sharply against other major currencies. The Japanese yen was quoted at 85.7 per US dollar, compared to 86.59 hit late Thursday in New York and 128.47 per euro.

The Hong Kong dollar was trading at HK$ 7.7503 against the dollar. Actually the Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.

In Sydney trade, the Australian dollar slumped to an eight-week low on a strong yen on Friday after choppy markets and fears that Dubai may not repay its $US80 billion debt turned investors off riskier assets. Against the US dollar, the Aussie fell as far as $US0.8989, from Thursday's close of $US0.9220. At the local close on Friday, it had recovered slightly to $US0.9017, but still hovered at a three-week low.

In Wellington trade, the NZ dollar was ditched today by Japanese investors fearful of a financial meltdown in the Middle East but it found support at lower levels. The NZ dollar was US71.05c at 5pm from US71.62c at 8am and US72.49c at 5pm yesterday. The low of US70.45c has not been seen since September.

The South Korean won declined 1.72% against the U.S. dollar on Dubai debt fears prompted investors to flock into safe assets. The local currency closed at 1,175.5 won to the greenback, down 20.20 won from the previous session.

The Taiwan dollar weakened further against the greenback. The Taiwan dollar was trading lower against the US dollar at NT$ 32.3150, 0.0710 up from Thursday’s close of NT$32.2440.

In the equity market, Asian stock markets slumped with some suffering their worst losses in months amid concerns about the potential fallout from Dubai World's debt standstill, with bank and construction stocks leading decliners.

In Japan, fears that Dubai may default on its debt have sent Japan shares market lower, joining a global retreat, as investor’s dumped riskier asset on worries about the ripples from a new international debt crises in Dubai.

Investors’ sentiments remain fragile amid growing pessimism over a recovery in the world’s second-largest economy. Investors expect that the market might remain weak for perhaps a few months given ongoing worries over the prevailing toxic cloud of so-called “3Ds” i.e. deflation, dilution, and the ruling Democratic Party of Japan.

At the closing bell, the Nikkei 225 Stock Average index was at 9,081.5, lost 301.72 points or 3.22% from its previous close, while the broader Topix of all First Section issues on the Tokyo Stock Exchange dropped 18.55 points, or 2.34%, to 811.01.

The Nikkei 225 Stock Average index dropped 416.18 points or 4.38%, while the broader Topix index has lost 27.7 points or 3.3%, for the week ended Friday, 27 November 2009.

On the economic front, the statistic bureau of Japan said that country core consumer price index fell 2.2% in October from a year earlier, the eighth straight annual decline, as the economy wallows in deflation due to weak domestic consumer demand. An index stripping out both energy and food prices showed deflationary pressures were mounting. Month-on-month, overall consumer prices dropped 0.4%, and excluding fresh food, prices fell 0.1%.

Retail sales in Japan dropped 0.9% year-on-year to 10.83 trillion yen in October 2009, the Ministry of Economy, Trade & Industry reported on Friday. Sales in large-scale retail stores declined 7.2% annually to 1.56 trillion yen in October. Wholesale sales plummeted 24.4% to 30.17 trillion yen.

Meanwhile, the Ministry of Internal Affairs & Communications reported that Japan's unemployment rate stood at a seasonally adjusted 5.1% in October, down from 5.3% in the previous month.

In Mainland China, share market stumbled with all ten sectors tilted into red terrain, hit by concerns over Dubai’s financials health. The shock from Dubai’s move to suspend payments due on a slice of Government-backed debt spilled over the world market. Investors recoiled from risky asset like materials and energy and also dumped banks and financials and properties stocks on rekindled fear that Dubai debt default could reignite the financial turmoil of the credit crises.

The Shanghai Composite Index, measuring A shares and B shares on the Shanghai Stock Exchange, slumped 74.71 points, or 2.36%, to 3,096.26, meanwhile the CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, tumbled 2.96%, to 3,382.51. The Shenzhen Component Index on the smaller Shenzhen Stock Exchange retracted 3.09% or 411.23 points, to 12,876.15. The Shanghai Composite index stumbled 212.08 points, or 6.41%, while the CSI 300 Index retracted 248.5 points or 6.84%, for the week ended Friday, 27 November 2009.

In Hong Kong, the stock market plummeted as heavy selling triggered across the sector after a weaker performance in mainland bourses and European markets and lower US index futures on concern over losses stemming from Dubai’s attempt to reschedule its debt.

At the closing bell, the Hang Seng Index hammered 1,075.91 points, or 4.84%, to 21,134.50, meanwhile the Hang Seng China Enterprise, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, stumbled 674.15 points, or 5.13%, to 12,472.13. The Hong Kong benchmark Hang Seng Index surrendered 1,321.34 points or 5.88%, while Hang Seng China Enterprises retracted 857.53 points or 5.88%, in the week ended Friday, 27 November 2009.

In Australia, the share market plummeted with all round of selling across twelve sector, sparked by meltdown in European stocks and other Asian bourses after ‘Dubai World’, the Dubai government’s investment and development vehicle, said it would halt repayments for up to six months on its nearly $60 billion in debt.

At the closing bell, the benchmark S&P/ASX200 index sagged 136.5 points, or 2.9%, to 4,572.1, meanwhile the broader All Ordinaries plummeted 130.4 points, or 2.76%, to 4,597.2. The benchmark S&P/ASX200 index shrank 113.70 points, or 2.43% in the week ended Friday, 27 November 2009, meanwhile the Broader All Ordinaries lost 109.50 points or 2.33%, during same period.

In New Zealand, benchmark index declined by more than 1% to end the last trading day of the week in the negative terrain on Friday. The NZX50 declined 1.06% or 32.87 points to 3094.43. The NZX 15 lost 0.60% or 33.42 points to close at 5616.47.

In South Korea, stocks finished lower Friday as investors fretted over debt problems in Dubai. The market's decline followed reports that Dubai World, a Dubai government investment fund, has asked creditors for a debt payment deferment. The benchmark Korea Composite Stock Price Index (KOSPI) declined 75.02 points or 4.69% to end at 1,524.50, carrying its losing streak through a second consecutive session.

Stock markets in Singapore were closed for the holiday.

In Taiwan, stock markets dumped their recent gains, following the fear of Dubai debt crisis as Dubai World, developer of some of the glitziest properties on the planet comes up short on repaying debt. The fear of contagion in the financial sector was seen through the exposure of Cathay Financial, Taiwan's largest listed financial services provider by assets.

The benchmark Taiex share index slumped to three weeks low on Friday, ending lower by 248.35 points or 3.21% in a day, closing at 7490.91, the lowest closing since 6 November 2009 when market finished the day at 7463.05

In India, key benchmark indices cut steep intraday losses as European stocks recovered from an initial slide. News that China has pledged to stick with a pro-growth stance in 2010 also helped. The market recovered after a heavy sell-off in early afternoon trade triggered by worries about Dubai's debt problems. Investors were also spooked by broader fears that global financial markets have not healed properly since last year's crisis, and that the Dubai problem could expose these weaknesses.

The BSE 30-share Sensex was down 222.92 points or 1.32% to 16,632.01. The S&P CNX Nifty was down 63.80 points or 1.27% to 4941.75.

Elsewhere, Malaysia's Kula Lumpur Composite index finished lower at 1270.61 while stock markets in Indonesia’s Jakarta Composite index gave up 68.01 points ending the day lower at 2393.45.

In other regional market, European shares pulled back from early lows on Friday, as investors started to buy up shares in firms battered in the previous session by news that Dubai is seeking to postpone repaying the debt of its corporate entity Dubai World. Regional share markets were also off lows in Europe. The U.K. FTSE 100 index declined 0.3% or 13.72 points to 5,180, the German DAX index fell 0.2% or 12.76 points to 5,603 and the French CAC-40 index lost 0.1% or 4.10 points to 3,675.