Is the Dubai debt crisis now under control?
Far East stock markets have today rebounded on news that Dubai has received a $10 billion cash injection from neighbouring United Arab Emirates state Abu Dhabi which will assist with the repayment of a $4.1 billion Islamic bond which is due today. This is a major step in the right direction and will ensure that the authorities do not default on the first major debt repayment since problems emerged in the state.
The feeling within the market is that if the Dubai authorities repay the $4.1 billion Islamic bond on time then this will give market confidence and indeed should see a rebound in many stocks and bonds hit over the last few weeks. While it would be foolish to suggest that the debt issue within Dubai is over this is most certainly the best piece of news which has emerged from the United Arab Emirates for some time.
The ripple effect which a potential debt default would have had across money markets was unthinkable in the current climate and could potentially have tipped the worldwide economy back into recession. It will be interesting to see how stock markets around the world react over the next few days and indeed whether Abu Dhabi is prepared to step forward with further assistance in the short to medium term.
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