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Markets partly recover from Dubai debt debacle

December 01, 2009


	Investors at the Dubai Financial Market carefully watch movements in stock trading yesterday as Dubai and Abu Dhabi saw losses in their main stock markets in early trading, while shares across Europe and Asia rebounded as fears that the country’s financial debacle would spread across global markets began to wane. [YONHAP]

The local stock and currency indexes regained much of what they lost last Friday as swift counteraction to the Dubai debt shock eased concern that a new global financial crisis was at hand.

The relatively small exposure of local financial companies to Dubai also played a part in the rebound. Some, however, still expressed caution.

Yesterday, the benchmark stock market Kospi rose 31.10 points, or 2.0 percent, to 1,555.60. That followed a milder-than-expected fall in the U.S. on Friday, including a 1.5 percent drop of its benchmark Dow Jones industrial average. European equity markets also rebounded Friday.

The won gained 12.70, or 1.1 percent, from Friday’s close to reach 1,162.80 won against the dollar, marking the biggest increase in a month.

Dubai’s rescheduling of debt on construction projects last week sparked concern over the property market bubble in the Middle Eastern city-state and the investment outlook of emerging markets, sending the Kospi plummeting 4.7 percent Friday and weakening the won to a four-month low against the dollar.

But the United Arab Emirates, which Dubai is part of, pledged support, raising prospects that the crisis could be quickly contained.

“On the back of the eased concern over Dubai, foreign investors picked up 128.2 billion won [$110.3 million],” said Kim Jung-hoon, an analyst with Korea Investment and Securities. “The view that the local stocks are cheap also prompted investors to buy local stocks.” Analysts also said the news that the industrial output rose for the fourth consecutive month last month contributed to the market recovery.

Earlier in the day, the Ministry of Strategy and Finance said the Dubai crisis had a “limited” impact on Korea because of its small debt exposure to Dubai. Local financial companies are owed $88 million by Dubai, according to local financial authorities.

“Given the size of the default and coordinated countermeasures by governments around the world, the possibility that the Dubai shock could grow into a second global economic crisis is very low,” the state-funded Korea Trade and Investment Promotion Agency said in a report.

But some think the Dubai shock is not over. “Today’s recovery was more of a response to the excessive decline on Friday,” said June Park, an analyst with Woori Investment and Securities. “As the supporting plan for Dubai is still without detail, the market will stay alert for the time being.”

By Moon Gwang-lip [joe@joongang.co.kr]

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