Dubai debt concerns continue to hit equities
A lack of clarity over the Dubai World situation continued to weigh on sentiment on Monday as US investors returned from their holiday weekend
The FTSE 100 index slipped 55.1 points or 1.1% to close at 5,190.7, while the FTSE 250 index fell back 113.1 points or 1.3% to 8,918.4. Shares slumped last Thursday following an announcement that Dubai World is seeking to defer repayment of some of its $59 billion liabilities, but many commented that the sell-off seemed overdone and shares were back on the up again on Friday.
Though the Dubai issue creates some serious problems for some offshore European banks, we think these problems are manageable. Read this article for more on the impact of Dubai’s woes. Still, this could resemble something of a turning point for equity markets—will they manage to hold strong in the face of sovereign debt concerns or will we see the correction that many have predicted?
The United Arab Emirates central bank over the weekend committed to providing liquidity for lenders, but a Dubai government official has since said in a local television interview that the government does not guarantee the investment vehicle’s debt.
Among Monday’s equity movements, Royal Bank of Scotland, which is understood to be the greatest relative lender to Dubai World, lost another 4.4% on the FTSE 100 index. Standard Chartered and Barclays shed 2.4% and 1.9%, respectively, while London Stock Exchange, which is 21%-owned by Borse Dubai, eased 3.0% lower.
Lloyds Banking Group was the main index casualty as analysts adjusted their target prices on the stock to account for the record rights issue. Lloyds shares closed down 5.9%, having tumbled 34.0% on Friday.
UK insurers, property stocks, oil producers and retailers were all largely lower on Monday as investors opted to stay away amid the Gulf debt turmoil and following some mixed economic data.
UK house prices were this morning revealed to have risen for the fourth consecutive month in November, up 0.2%, according to Hometrack, while monthly mortgage approvals hit their highest level since March of last year, Bank of England data showed. Consumers also paid off considerably more debt last month than had been expected, the government’s consumer credit data revealed. But on the flipside, consumer confidence dropped to its lowest level in three months, according to the GfK survey, surprising those who had forecast another moderate rise.
The situation was looking a little more positive over in the US, where the Chicago Institute for Supply Management index rose to its highest level since August 2008, coming in at 56.1 compared to 54.2 the month before. Of more importance, however, will be the US jobs data, due out on Thursday and Friday.
Returning to UK equities, Thomas Cook Group slipped 1.9% as investors shrugged off the travel operator’s stronger-than-expected results and instead focussed on comments that trading conditions could become even trickier to navigate next year. Peer TUI Travel, which will report its own results tomorrow, ticked up 0.9%.
Other risers included UK-listed miners as investors sought out bargains following recent falls, while the usual defensives also attracted buyer attention.
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