How the tiny Dubai has its sway on the global stock market?

The global stock market wake up to a rude shock when it was official that the state owned Dubai world and its real estate subsidiary Nakheel were in deep debt trap. The consequences of the Dubai fiasco had its share on the global stocks marked by the U.S. Standard and Poor 500 index fell by 1.7 per cent on November 27th and the Dow Jones real estate index too was down by 2.9 per cent.

When the Dubai sneezed, the Mumbai sensex caught cold by shedding about 400 points on the Friday, the November 27th. The official declaration about the Dubai debt trap revealed that it owed more than eighty billion dollars. The financial experts attributed the fiasco to non transparency in financial dealings which could possibly affect the entire global markets adversely.

The Dubai trap reminds us about the sub-prime crisis, started a year ago in the United States which laid the foundation for the subsequent stock market crash and global recession. The similarity in the sector that was targeted (real estate) shook the business confidence around the world. The US dollar started strengthening against the global currencies during the last week of November which will in turn exert great pressure against the equity markets globally.

The scenario before the crisis!

Before it was officially declared that the Dubai real estate is in red, the city was known for its conglomerate of real estate companies. It had the potential to become a world financial centre but for the bubble that had burst recently. It was considered as a status and symbol among the opulent and the super rich around the world to own a piece of real estate either as office or house in Dubai. Even those who can’t afford to have their share of cake sold their property elsewhere to have a root in Dubai to their own dismay.

The international rating agency, Standard and Poor’s, downgraded its ratings on many of the entities owed by the Dubai government due to the debt. Obviously it is seen that the world hasn’t learned the lesson it ought to, even after the sub-prime crisis and the Dubai real estate debt came as a real shock to those who had seen a silver lining in the recent economic recovery and upward movements in global equity markets. How the world will cope up with the recent Dubai debt and its effect on future stock movements across the world will be any one’s guess!