Thursday, November 20, 2008
Two reports out of the Middle East this morning paint a rather gloomy picture of what's ahead for the oil-rich nation of Kuwait and the real estate-financial market boom town of Dubai, one of seven semi-autonomous sheikdoms within the United Arab Emirates.
It's not clear which area might be hit harder by the recent turn of events - Kuwait with oil at $50 a barrel or Dubai with a real estate boom now apparently in the process of going bust.
After the massive capital infusions for U.S. bank stocks over the last couple months and with the Washington/Wall Street Plunge Protection Team in the news again (see this YouTube clip for all the particulars), it shouldn't be surprising to see other nations follow our lead in trying to prop up equity markets.
This Wall Street Journal report($) provides some of the details:
In Kuwait, an official said Wednesday that the government was planning to pump about $12 billion, if required, into the country's stock market. Abdulmajeed Al Shatti, who sits on a government committee dealing with the financial crisis, said the country's sovereign-wealth fund, the Kuwait Investment Authority, would anchor plans to buy as much as 10% of the value of stocks traded on the Kuwait Stock Exchange.According to this report in the Telegraph, luxury real estate prices are now falling in Dubai, the British apparently pulling back amid a financial market, housing market, and economic meltdown at home.
The main index on the KSE has fallen almost 30% since the beginning of the year. Investors and brokers have staged protests over their losses. They won a court order last week to temporarily close the exchange; the market reopened this week.
Shares in the KSE's All-Share Index closed up 2.7% Wednesday following Mr. Al Shatti's comments about the possible bailout. Mr. Al Shatti, also chairman of Commercial Bank of Kuwait, told Zawya Dow Jones that the plan aims to "stop the panic and boost the liquidity of investment companies."
A spokesman for the KIA declined to comment.
Meanwhile, in Dubai, a senior government official said a new government committee would consider whether to seek a sovereign-debt rating to help raise funds. "We will visit this in 2009. Dubai never needed a rating to borrow, but now it's essential," said Nasser Al Shaikh, the director general of Dubai's department of finance.
Property prices on the Palm Jumeirah, the island in Dubai that has been dubbed the ‘eighth wonder of the world’, have plummeted by as much as 40pc since September amid fears that the global credit crisis is stalling the emirate’s economy.You could see this one coming a mile away - tonight's party might be a little bit more subdued than the planners originally thought.
More than 2,000 world celebrities are due to attend the event tonight including Oprah Winfrey and actors Robert De Niro and Denzel Washington. Sol Kerzner, the South African billionnaire owner of the Atlantis is organizing the launch party.
A four-bedroom villa on the Palm, which is run by the state-owned developers Nakheel, is now selling for 10 million UAE dirhams (£1.8m), down from 15 million dirhams in September, Dubai-based property consultants Engel & Volkers told Reuters.
When work started on the Palm in 2001, the villas were snapped up for as much as £5m each and sold to buyers including footballer David Beckham and racing driver Michael Schumacher. In the following hype surrounding the island, nearly a quarter of the villas were sold to British buyers.
If we really do get that long-lasting global deflationary depression that some are calling for, the construction in Dubai will serve as a reminder to the world as to just what happened earlier in the decade.