LONDON (AP) – World stocks tumbled Friday amid fears that the fallout from Dubai’s problems repaying $60 billion in debt would derail the global financial and economic recovery.
Sentiment among investors has been hit hard by Wednesday’s news that Dubai World, a government investment company, has asked creditors if it can postpone its forthcoming payments until May. That has stoked fears of a potential default and contagion around the global financial system, particularly in emerging markets.
Asian stocks were particularly badly hit as they played catch-up following big losses in Europe in the previous session, the main indexes in Hong Kong and South Korea slumped nearly 5 percent. Hong Kong’s Hang Seng ended 1,075.91 points, or 4.8 percent, lower at 21,134.50, while South Korea’s benchmark plummeted 4.7 percent to 1,524.50.
In Europe, the FTSE 100 index of leading British shares was down 16.13 points, or 0.3 percent, at 5,178, while Germany’s DAX fell 19.45 points, or 0.4 percent, to 5,594.72. The CAC-40 in France was 23.27 points, or 0.6 percent, lower at 3,655.976.
On Thursday, Europe’s main indexes slid over 3 percent, with banks, especially those thought to have exposure to Dubai such as Barclays PLC, HSBC PLC and Standard Chartered PLC, particularly badly hit. Wall Street, which was closed Thursday for the Thanksgiving Holiday, is set for a heavy bout of selling, Dow futures were down 106 points, or 2 percent, at 10,236 while the broader Standard & Poor’s 500 futures slid 27.4 points, or 2.5 percent, at 1,081.50.
“Market cynics have been looking for a correction in the equity market, which has blazed the trail in the past seven months,” said David Buik, markets analyst at BGC Partners. “However they have been unable to find sufficient reasons to nail their flag to the mast, by taking profits, whilst alternative asset classes were unattractive options, well they certainly found an excuse yesterday with the Dubai debt debacle,” he added.
Across all markets, there is a growing awareness that investors may use the upcoming year-end to lock-in whatever profits have been made over the last 12 months.
Investors were also keeping a close eye on associated developments in the currency markets as the dollar slid to a new 14-year low of 84.81 yen. However, the dollar climbed back off its lows to 86.33 yen amid mounting expectations that the Bank of Japan may intervene in the markets by buying dollars or selling yen after Japan’s finance minister Hirohisa Fujii said he was “extremely nervous” about the movements in the yen and that the “market had moved too far in one direction.” “The concern is now that the Bank of Japan will intervene to prop up the dollar as it heads towards its all-time lows,” said Michael Hewson, an analyst at CMC Markets.
Japan’s central bank has done so before, he noted. On Thursday, the Swiss National Bank reportedly intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc. That seems to have worked, for now, at least, as the dollar has moved back above parity, trading 0.9 percent higher at 1.0118 Swiss francs.
The British pound has also been battered amid fears about the exposure of Britain’s banks to the region. The pound was down 0.8 percent at $1.6380.
One currency losing its shine somewhat was the euro, which fell 0.8 percent to $1.49, in times of uncertainty the dollar is considered to be more of a safe haven currency. Elsewhere in Asia, Japan’s Nikkei 225 stock average fell 301.72 points, or 3.2 percent, to 9,081.52 while Australia’s index dropped 2.9 percent. China’s main Shanghai stock measure was off 2.4 percent.
Oil, meanwhile, tracked developments in stock markets and benchmark crude for January delivery fell $4.17 to $73.79 a barrel in electronic trading on the New York Mercantile Exchange.