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Day after Dubai

Peter Switzer
1 December 2009
The local stock market shrugged off the Dubai doubts with the ASX 200 up 129 points to end at 4,701.

Fortunately we woke this morning to comforting headlines, which read: “Abu Dhabi soothes Dubai fears”.

The UAE

To those not up with the seven Emirates that make up the United Arab Emirates, Abu Dhabi is the oil-rich big brother. Dubai is the one that runs out of oil first and that’s why they have been spending big to build up its finance and tourism pre-eminence.

It also has Iran money and it’s pretty close to Iran in terms of doing business. It’s the ‘Las Vegas’ in the Middle East for Iranians and others such as wealthy Indians.

Abu Dhabi and the UAE central bank have stepped in and indicated support for Dubai and that has settled market nerves.

Two views

I did love the HSBC banker who dismissed the Dubai bother as a blip and I hope the guy is right. I always figure that HSBC is much closer to the ground in places such as Asia and the Middle East.

That said there are two views. Markets retreated on Monday in a wobbly session, as investors sorted through the fallout of the Dubai news and the weekend retail sales numbers.

Phil Orlando, chief equity market strategist at Federated Investors said this on CNBC: “This Dubai situation, we think, is noise … The hit potentially to the US banks are about $10 billion for Dubai, and by comparison, AIG was $180 billion. So we think this little hiccup we’ve seen in the markets may represent a nice buying opportunity.”

He is tipping the S&P 500 at 1200 by early next year. It finished today at 1,097.

Others warn you can’t be too dismissive of debt defaulters as it could bring out others who have been misleading the markets.

Look at the data

Wall Street collectively has coped with the Dubai drama. The Dow Jones index rose 35 points or 0.3 percent, to close at 10,344.84. The S&P 500 gained 0.4 per cent and the Nasdaq added 0.3 per cent.

And for statisticians in the month of November, the Dow gained 6.5 per cent and that’s five months of gains on a trot.

On the US economic front, there’s more good news with the Institute for Supply Management-Chicago reporting a rise to 56.1 in November from 54.2 in October. This measures regional business activity and the result is the healthiest result since August 2008.

Retail results

Retail readings so far show shoppers turned up in numbers but spent less. The average spend year on year dropped from $372.57 last year to $343.31 this year.

Tomorrow, we get the US results for Cyber Monday and that’s when workers get back to work from the Thanksgiving holidays and can use their very fast business computers to buy online! Poor bosses.

By the way, it’s not the biggest online buying — that actually comes in closer to Christmas.

Provided Dubai turns out to be as unimportant as most experts think, then we can keep our focus on the main game — does the US continue to recover? And happily, so far, so good. 

 

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 


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