Dubai trouble rattles Asian markets, building and banking shares plunge
News that Dubai's government-owned investment company, Dubai World, was asking to delay paying back $60 billion in debt, triggered a wave of heavy losses for banks and other companies with investments in the region. Dubai has been on a massive spending spree, investing in construction and development that has transformed this desert locale into a financial and tourism center. Recent additions to the landscape include the gravity-defying Burj Dubai, intended to be the tallest building in world and slated to be completed this January, and a mall with an indoor ski resort.
Japanese building companies involved with the region's development suffered massive losses as investors worried that construction projects would halt and payments could be deferred. Two companies that had won contracts to construct the Dubai rail system were among the worst hit Japanese stocks, despite their claim that they have no exposure to Dubai World. Obayashi Corp. (OBYCF) plunged 8.7% and Kajima Corp. (KAJMF) lost a whopping 14.3%.
Meanwhile, Japan's Taisei Corp. (TISCF), which was contracted to build the underwater tunnel connecting the manmade, palm-shaped island of Palm Jumeirah with the mainland, tumbled 7.1%. and Shimizu Corp., a building company contracted to build luxury homes in Palm Jumierah fell 4%. Both firms were contracted by Dubai property company Nakheel Properties, an arm of Duabai World that's in charge of developing Palm Jumeirah. Nakheel has proclaimed the development the eighth wonder of the world.
Japanese banks that had lent heavily to the Dubai government in recent years suffered huge losses today. Mizuho Financial (MFG) plunged 3.3%, Sumitomo Mitsui (SMFJY) fell 3.7% and Mitsubishi UFJ (MTU) shed 2.2%.
To add to the banking woes, the sinking price of oil drove Hong Kong-listed shares of China's offshore oil giant Cnooc (CEO) down 5.3% and PetroChina (PTR) down 5%. Meanwhile in China, falling commodity prices sent Jiangxi Copper (JIXAY) plunging 8.7% and Aluminum Corp. of China (ACH) down 4.3%.
Damage from the Dubai debacle extended to the Hong Kong market where HSBC (HBC), a Dubai World lender, sank 7.6% and Standard Chartered (SCBFF), also a creditor, plunged 8.6%. Shares in Chinese banks, already under pressure from Chinese regulators demanding they hold adequate amounts of cash, slid even further. Industrial & Commercial Bank of China (ICDBF) dropped 5.3% and Bank of China (BACHY) slumped 5.1%.
Just as the global economy seemed to be on the mend, fears of a massive default like this could deliver even more financial pain.