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By Wayne Arnold
DUBAI // Debt troubles in Greece and southern Europe have triggered a retreat by investors from global emerging markets, pushing up borrowing costs around the Gulf even as the region tries to recover from the turmoil that followed Dubai World’s restructuring announcement last November.
At the epicentre of the latest turmoil is Athens, where worries about whether the Greek government can meet its debt payments without socially destabilising budget cuts are roiling markets from Wall Street to Tokyo.
As economists and officials debate whether the EU should bail out the Greeks, concerns have spread to other heavily indebted members of the union, including Spain, Portugal, Italy and Ireland.
What might seem like a largely European problem, though, has quickly hop-scotched across emerging markets worldwide.
According to Citigroup, investors pulled US$1.6 billion (Dh5.87bn) out of emerging-market stocks in the week ended last Wednesday, the biggest outflow since August.
The retreat from risk is also battering emerging-market bonds, including those in the Gulf, as investors worldwide pull back to the perceived safety of US government bonds and the dollar.
“The Gulf and UAE credit markets are following a similar trend to what we’re seeing on a broader level,” said Chavan Bhogaita, the head of credit research at the National Bank of Abu Dhabi. “Sentiment has been pretty bearish.”
While analysts and economists say there appears little risk so far that the retreat from emerging markets will trigger new debt crises in the Gulf or in Asia, it stands to make borrowing even more expensive and complicate efforts to refinance or restructure existing debts.
The yield on Dubai’s latest Islamic bonds, which it sold in October at a yield of about 6.5 per cent, climbed last week as high as 9 per cent, traders in Dubai said.
The cost of insuring Dubai’s bonds, which had fallen after Abu Dhabi in mid-December promised Dubai $10bn in additional financial assistance, has climbed back above $500 for every $10,000 of debt.
But Dubai is not alone. Even the price of insuring bonds from oil-rich Abu Dhabi and Qatar has edged upwards amid the latest turbulence.
In Saudi Arabia, Dar Al-Arkan, a property company trying to sell as much as $750 million in bonds this week, is reportedly being forced to offer leery investors an interest rate as high as 11 per cent.
Analysts said the stampede away from emerging-market risk was not entirely justified.
While Europe ’s southern fringe might have debt problems, they said, Asian governments remain flush with currency reserves to cover any budget shortfalls.
“People recognise that problems in Asia don’t really compare with the problems in Europe,” said Matt Huang, a strategist at Barclays Capital in Singapore.
And aside form heavily indebted Dubai, the same is true in the Gulf, analysts said.
“Greece is a story of investors losing confidence in a highly indebted sovereign with negative growth that is reliant on international capital markets to fund its wide deficit,” said Tristan Cooper, the senior analyst for sovereign risk at Moody’s in Dubai.
“We don’t really have governments like that in the region.”
Source: "The National", 09 February 2010
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