Stocks Tumble, Bonds Rally on Dubai; Credit-Default Swaps Soar

VNStockNews.com - European stocks fell the most in three weeks and bonds jumped after Dubai’s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar dropped to a 14-year low against the yen.

Europe’s Dow Jones Stoxx 600 Index retreated 2 percent at 1:21 p.m. in London. The Shanghai Composite Index slumped 3.6 percent, its biggest drop since August, and Brazil’s Bovespa Index slipped 1.1 percent. Credit-default swaps tied to debt sold by Dubai rose as much as 131 basis points to 571 according to CMA DataVision. U.S. markets are closed today for the Thanksgiving holiday.

Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt. The dollar’s slump prompted Finance Minister Hirohisa Fujii to say Japan’s government is watching currencies “very closely,” while traders said the Swiss central bank sold the franc after it climbed to the highest value against the euro since June.

“Dubai isn’t doing risk appetite any favors at all and the markets remain in a vulnerable state of mind,” said Russell Jones, head of fixed-income and currency research in London at RBC Capital Markets. “We’re still in an environment where we’re vulnerable to financial shocks of any sort and this is one of those.”

Sovereign Debt

The Dubai announcement drove up the cost of protecting emerging-market sovereign debt against default. Contracts linked to Saudi Arabia climbed 18 to 108, while Bahrain rose 30.5 to 225, CMA prices show. Debt swaps linked to Abu Dhabi government bonds increased 18.5 to 155, Vietnam rose 39 to 252, Indonesia climbed 27 to 229 and Russia added 13 to 205.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Vietnam’s dong, the world’s worst-performing currency, declined 3.3 percent against the dollar to a record low after the central bank devalued the currency to curb inflation. South Africa’s rand weakened 1.7 percent against the dollar as gold declined. The Turkish lira slumped 1.6 percent versus the greenback, and Hungary’s forint lost 1 percent per euro.

Brazil’s real slid 0.5 percent versus the dollar, the biggest decline in a week. Mexico’s peso dropped for the first time this week, falling 0.3 percent against the U.S. currency.

Russia’s Micex Index fell 2.3 percent as commodities retreated. The MSCI Emerging Markets Index lost 1.4 percent.

Property Slump

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG. Banks around the world have written off more than $1.7 trillion as the credit crisis trashed the value of their assets.

European bonds rose as investors fled to the relative safety of government debt. The yield on the 10-year U.K. gilt dropped 5 basis points to 3.58 percent after falling to the lowest level in more than a month. The 10-year German bund yield declined 6 basis points to 3.20 percent, the lowest level in more than three weeks.

Stocks fell from Shanghai to Tokyo and London. The MSCI Asia Pacific Index retreated 0.5 percent as Chinese banks dropped on concern they need to sell more shares to fund demand for loans. Bank of China Ltd., which said this week it’s studying options to replenish funds, declined 2.9 percent.

China Minsheng

China Minsheng Banking Corp. became the first Chinese lender in four years to fall in its Hong Kong trading debut. The nation’s first privately owned lender slipped 3.1 percent after raising HK$30.1 billion ($3.9 billion) this month in the territory’s biggest public share sale since April 2007.

Japan’s Nikkei 225 Stock Average fell to a four-month low as the dollar’s decline against the yen dimmed the earnings outlook for makers of electronics and cars. Canon Inc., the world’s largest maker of cameras, fell 2.1 percent in Tokyo. The company gets 28 percent of sales from the Americas. Toyota Motor Corp., the world’s biggest carmaker, slid 1.2 percent.

European Aeronautic, Defence & Space Co., which is part- owned by Dubai, fell 2.5 percent in Paris. Porsche SE, which is merging with Volkswagen AG, tumbled 5.5 percent and VW fell 2.7 percent in Frankfurt. Qatar owns 10 percent of the voting rights of Porsche and will hold 17 percent of the combined carmaker.

Banks Fall

Dubai World’s lenders include Credit Suisse Group AG, HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, according to a person familiar with the situation. Credit Suisse fell 3.3 percent in Zurich, HSBC slid 4.3 percent, Lloyds sank 3.9 percent and RBS retreated 4.2 percent in London, where a trading glitch halted trading in many stocks.

Marfin Investment Group SA, the investment fund backed by Dubai Financial LLC, plummeted 7.6 percent in Athens.

Futures on the Standard & Poor’s 500 Index retreated 1 percent. The U.S. stock market will be open for a half day of trading tomorrow.

The yen climbed as high as 86.30 per dollar, the strongest since July 1995, before trading at 87.77. The U.S. currency strengthened against all but the yen among its 16 most-traded counterparts, appreciating 1.6 percent versus the New Zealand dollar and advancing 1.2 percent against the South African rand.

The Swiss franc weakened to as low as 1.5133 per euro, falling from the highest level since June, on speculation the Swiss National Bank sold the currency to curb its gains. The franc dropped 0.4 percent to 99.98 centimes against the dollar after yesterday reaching parity for the first time in 19 months. The SNB declined to comment.

Crude oil for January delivery fell 1.1 percent to $77.11 a barrel in electronic trading on the New York Mercantile Exchange after a government report yesterday showed rising inventories. Gold for immediate delivery declined 0.6 percent to $1,184.85 an ounce in London, after touching an all-time high earlier today. (Bloomberg)