WHAT WENT WRONG IN DUBAI? - WWW.niftyviews.com -Impact and analysis

WHAT WENT WRONG IN DUBAI? - WWW.niftyviews.com -Impact and analysis

WHAT WENT WRONG IN DUBAI?

Property Collapse

Dubai borrowed $80 billion in a four-year construction boom that transformed the sheikhdom into a regional tourism and financial hub. It suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG.

The problem?

Dubai World, the government investment company burdened by $59 billion of liabilities, sought to delay repayment on much of its debt. Japan’s Finance Minister Hirohisa Fujii said he may contact the U.S. and Europe to act on currencies, signaling his growing concern that the yen’s ascent will hurt the economy. Dubai World had $59.3 billion in liabilities and $99.6 billion in assets at the end of 2008, subsidiary Nakheel Development Ltd. said in an August statement. Dubai has a total $4.3 billion of government and corporate debt due next month and $4.9 billion in 2010’s first quarter, Deutsche Bank data show. Imagine if the 99.60 bln$ is written down by 50-60% as most of the investment was in Real estate and creating an Oasis in the desert.

Imagine SBI or Lic of India defaulting on foreign loans. This is what Dubai world wants a 6 month moratorium for its loans. It’s the worst one can expect from a sovereign country.

Impact?

While financial impact will be limited on Indian companies, the sentimental effect over a period of time will be enormous. Do remember this upmove was liquidity driven and was awaiting just one global event to unwind its positions. The question remains whether the dubai debt crisis will be one of such event.

Advise: -

Technically nifty made a lower Top at 5138 as compared to previous top at 5183. It has also broken down from its 50dema at 4913. if we are unable to cross 4913 some protections needed to be taken.

One should systematically cut all loss making positions or ride the same with a strict sl.

Many Indian companies have exposure to the Dubai region. Unless one sees a value proposition in them investments for the time being can be avoided in the same.

Also always remember what Keynes said “ In long Run all are dead :)

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