Asian markets rebound as Dubai debt fears recede

November 30, 2009

, HONG KONG, Nov 30 – Asian shares rebounded on Monday after a heavy sell-off in global equities last week, as the United Arab Emirates central bank moved to bolster its banking sector and calm fears over Dubai\’s debt problems.

Hong Kong\’s Hang Seng Index surged 3.55 percent in afternoon trade, recovering some ground after Friday\’s tumble of nearly five percent, to stand at 21,883.95.

In Seoul the KOSPI closed up 2.04 percent after falling 4.69 percent Friday, while Sydney surged 2.83 percent.

After concerns "over the risks of a Dubai debt default becoming a global systemic event, there appeared to be a little more comfort", Philip Borkin, economist at ANZ bank in Wellington, told Dow Jones Newswires.

Tokyo shares rose 2.91 percent with confidence also buoyed by government plans for an extra stimulus of more than 31 billion dollars this fiscal year to tackle the surging yen and weak equities.

Shanghai rose 2.53 percent by midday after Beijing said last week it would continue its loose monetary policy next year, dealers said.

India\’s Sensex rose 1.9 percent as the government announced the economy grew 7.9 percent year on year in the September quarter.

However, Asian markets were yet to recoup all of Friday\’s losses and Singapore drifted 0.88 percent intraday. Such volatility was a "reminder that all is not yet well in the global economic and financial system", said Borkin.

Despite the UAE central bank decision to help its banking sector, Gulf state stock markets plunged Monday after a four-day Islamic festival, catching up with last week\’s global falls.

Dubai dived 5.87 percent while Abu Dhabi was 6.8 percent lower.

Adding to the region\’s woes, property developer Nakheel, part of the debt-laden Dubai World conglomerate, asked for a suspension in trading of all its Islamic bonds, the NasdaqDubai bourse said on its website Monday.

The UAE central bank intervention came after last week\’s shock announcement that state-controlled Dubai World wants to halt payments to creditors until at least May next year.

The news sent jitters throughout world markets, stoking fears of a possible default by Dubai and its state-owned businesses, which together owe 80 billion dollars.

The International Monetary Fund welcomed the central bank move.

"The United Arab Emirates is a strong resource-based economy and we welcome today\’s announcement by the central bank of the UAE making available to banks a special additional liquidity facility," an IMF statement said.

The bank gave no figures for the amount of liquidity available, but its step helped boost confidence in Asia where analysts played down fears of major problems at banks exposed to the potential crisis.

In Hong Kong, shares in the two banks with the largest exposure to Dubai perked up.

In early trade, HSBC was 3.9 percent higher at 90.35 Hong Kong dollars, after plunging 7.6 percent Friday. Standard Chartered was up 5.3 percent at 195.40, after sliding 8.6 percent.

HSBC\’s Middle East arm was by far the single biggest foreign lender in the UAE with outstanding loans of 17 billion US dollars at the end of last year, according to the Emirates Banks Association.

Standard Chartered was next with 7.8 billion dollars owed at the end of 2008.

The dollar lingered in a 14-year trough against the yen in Asia Monday ahead of a slew of US economic data that could raise fresh concerns surrounding growth in the world\’s top economy.

However with the greenback at 86.35 yen in Tokyo, up from a nadir of 84.82 last week, there was some comfort for exporters.

Commodities also recovered. In Singapore, New York\’s main contract, light sweet crude for January delivery, gained 49 cents to 76.52 dollars a barrel. Hong Kong gold opened higher at 1,175.00 US dollars an ounce.

Markets were also waiting for interest rate decisions in Europe and Australia later this week.

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