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Dubai knock-on effect impacts UK FTSE 100 index

The UK FTSE 100 index fell by 3.2% today as the fallout from the sovereign debt situation in Dubai continues. In effect we stand on the precipice of a massive sovereign default in Dubai with the authorities in debt to the tune of around $60 billion, debt which was accumulated during the attempt to push Dubai to the front of the worldwide investment market. So what next?

While there is no doubt that the announcement of a debt repayment suspension is a killer blow in the short term this will not finish Dubai forever. It is an area of the world which has attracted massive investor interest over the last decade and indeed many investors and property developers have made substantial amounts of money. It is to all intents and purposes an "East meets West" situation and while there may be further short-term downside in the property and investment market, they will recover in due course.

However, a number of European and worldwide banks have significant exposure to Dubai, and the property market in particular, which has caused some concern amongst UK investors. Whether some investors were looking for "a reason" to bank some profits is debatable but nevertheless the announcement from the Dubai authorities was a surprise.

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