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, The Associated Press informs.
Stocks dropped around the world, Treasuries jumped and the dollar rose after Dubai World, the government investment company burdened by $59 billion of liabilities, surprised the market by asking for a “standstill” agreement from creditors on Nov. 25. Its debt includes $3.52 billion of bonds due Dec. 14 from property unit Nakheel PJSC.
"Markets across the globe became victims of a massive sell off wave in reaction to the Dubai World announcement," Stefan Kolek, a strategist at UniCredit SpA in Munich wrote in a note to investors. "The story was a wake up call for investors that the crisis is not over and that risks still loom," Bloomberg informs.
Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Supreme Fiscal Committee, said: "While the government understands the concerns of the market and the creditors, it had to intervene because of the need to take decisive action to address its particular debt burden."
He said the government had acted in full knowledge of how markets would react. "We want to ensure resources are deployed ... to enhance the businesses of Dubai World Group, build on the restructuring ... and ensure long-term commercial success." He said that further information would be given early next week, CNN News reports.