Black Friday - Global markets hit by fresh bout of selling
Dubai’s surprise move angered some investors who had been reassured by local officials for months that the city would meet all obligations on its $80bn (£48bn) of gross debt in spite of recession and a real estate crash.
Dubai also launched a restructuring of the government holding company, which oversees ports operator DP World, the UK-based P&O Ferries and troubled investment company Istithmar. Nakheel, the developer behind the city’s Palm Islands that boast celebrity owners such as David Beckham, has had to shed thousands of staff and left contractors out of pocket as local property prices halved and credit dried up.
A symbol of Dubai’s pre-crunch excess, the government company has had to cancel plans for the world’s tallest tower and a constellation of reclaimed islands, as collapsing cash flow left the developer on the brink.
The main share indexes in London, Paris and Frankfurt all opened more than 1% lower before recovering.
The moves followed news from the state-owned Dubai World that it would delay repaying some of its debt.
UK Prime Minister Gordon Brown described the fall in the markets as a "setback" but said it was "not on the scale of previous problems".
"The world financial system is stronger now and able to deal with the problems that arise," he told reporters on his way to a Comonwealth leaders summit.
Earlier, Asia's markets had fallen sharply. Tokyo's benchmark Nikkei fell 3.2% to 9,081.52. In Hong Kong, the Hang Seng index ended down 4.84% at 21,134.5.
Dubai World is the centrepiece of the Gulf state's economy. David Buik, senior partner at BGC Partners, said: "You can't just say to the world: 'I don't want to pay my debts'. There is no income coming in from any of these properties. I think this is shocking PR."
The biggest underlying fear is that Dubai's problems could reignite the international financial turmoil of the credit crisis.
Chris Skinner, chairman of the Financial Services Club, said: "We're very heavily interlinked. Dubai is the key financial centre in the Middle East."
Any knock to economic confidence could lower global demand for a whole range of commodities, including oil.
Labels: global economy