Global equities suffered substantial losses on Thursday as Dubai’s attempts to refinance debt threw many into a state of panic, with Wall Street’s Thanksgiving holiday and a technical fault halting trade on the London Stock Exchange also weighing on volumes.
Both the FTSE 100 and FTSE 250 indices slumped 3.2% each, with the former dropping 170.7 points to 5,194.2—its greatest fall since March—and the latter shedding 290.2 points to 8,880.5.
Technical problems halted trading on the London Stock Exchange for more than three hours earlier in the day and with Dubai now on holiday until December 6, investors nerves are likely to remain on edge over the coming sessions.
Government investment company Dubai World announced on Wednesday that it is seeking to delay repayment of much if its $59 billion debt by six months, pushing emerging markets credit-default swaps surging higher and hitting emerging market currencies hard. Vietnam’s dong and Brazil’s real were among the currencies that fell against the US dollar, while the dollar itself slumped to a 14-year low against the yen.
European banks are thought to have credited approximately half of Dubai World’s liabilities and as such Barclays plunged 8.0% lower on the FTSE 100, Royal Bank of Scotland dropped 7.8%, Standard Chartered and Lloyds Banking Group lost 5.8% each, and HSBC fell 4.8%.
“It’s been a fairly horrible day on the markets and the key reason has been all about investor fears that the delay in payment of debt by Dubai World might spin off and affect key European Banks who are highly leveraged in that region,” commented City Index market strategist Joshua Raymond. “The major banks involved will now have to factor into account that they may not be receiving the set amount of capital from Dubai as expected and this could handicap their efforts elsewhere,” he added.
British banks were also in the news following the release of a government-commissioned report into the corporate governance, in which its author, Morgan Stanley senior adviser David Walker, recommended banks delay bonus payments for as much as five years. The report, which is said to propose some of the toughest banking sector pay policies in the world, is strongly supported by the UK government and Chancellor of the Exchequer Alistair Darling said today its recommendations will be implemented as soon as possible.
London Stock Exchange Group, whose largest shareholder is Borse Dubai, suffered a 7.4% slump—its most in eight month. And resources stocks were also under the cosh as metal and oil prices lost momentum. Xstrata and Kazakhmys were the worst off amongst the UK-listed miners, down 6.8% and 6.4%, respectively, while index heavyweights BP and Royal Dutch Shell saw their shares prices lose 2.7% and 2.6%.
Just three stocks managed to stay out of the red on Thursday, two of which were utility companies Severn Trent and United Utilities, which each added a respective 3.8% and 0.4% after the industry regulator Ofwat’s final determination for price increases over the next five-year regulatory period revealed smaller-than-previously-estimated cuts to household utility bills between 2010 and 2015.
Evolution Securities analyst Lakis Athanasiou said the relaxation in the final determination was better than anticipated and repeated his Buy recommendations on industry players while upgrading Severn Trent to Buy from Add.
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