Dubai debt shock wipes $A30 billion off ASX

The Australian stock exchange has dropped nearly 3% in early trading as the fallout from the news of Dubai’s near-default spreads to global markets. The index remained depressed through mid-afternoon trading.

The dip represented around $A30 billion in lost market value.

At home, the Kiwi dollar was hit hard, falling 2.25% against the greenback.

The All Ordinaries index has dropped 2.7% within the first hour of trading, with some financial stocks down 4% or more.

Bank of Queensland shares have dropped 4.1% (45c) to A$10.56 a share while insurer AMP is down 3.1% (19c) to $5.91 and ANZ shares have lost 3.9%, dropping 85c to $21.13.

Commonwealth Bank of Australia (CBA), the owner of ASB Bank, is down 3% ($1.55) to $50.83 while National Australia Bank (NAB), which owns BNZ, has dropped 4.5% ($1.27) to $26.86.

Westpac is also down, shedding 86c (3.6%) to drop to $23.19 a share.

The NZX 50 index is holding up better early afternoon, down only 1.3% to 3086.9 on trading of more than $32 million so far.

The Kiwi is down 2.25% against the greenback (read NZ dollar dives as Dubai nears default).

Hamilton Hindin Greene director Grant Williamson said while few New Zealand-listed companies have any exposure to Dubai, a default would have a “flow-on effect” from world markets.

“An event like this destroys investor confidence and markets will drop if investor confidence is not there.”

Credit agencies immediately cut ratings of Dubai debt, sending European shares to their biggest one-day drop since April. In Canada, the only North American sharemarket trading, the main index dropped 200 points.

In Europe, banks were the biggest decliners, with HSBC, Lloyds, Royal Bank of Scotland and Barclays all down more than 4% in London, Deutsche Bank down 5.9% in Frankfurt and Société Générale slipping 3.6% in Paris.

The pan-European Dow Jones Stoxx 600 index (pictured above) closed down 3.3% at 239.85, a level not seen since early November.

The UK FTSE 100 index closed down 3.2% at 5194.13, the French CAC-40 index ended down 3.4% at 3679.23 and the German DAX index closed down 3.3% at 5614.17.

Mr Williamson said the key question would be how the US market, which was closed yesterday for Thanksgiving, would react when it re-opened today.

Futures indexes were predicting a 1.7% drop, although this was no guarantee of how the market would perform.

But the new market turmoil could be just what the doctor ordered for exporters struggling with the high dollar – already it has fallen below 72c against the US dollar and Mr Williamson agreed it could fall further if the crisis in Dubai worsened.

“We saw the New Zealand dollar drop when the credit crunch hit. When there’s uncertainty you get a flight to quality and investors will not take on risky currencies.”

When asked if the Dubai debacle could prove to be round two of the credit crunch Mr Williamson said, “that could be about right.”

However, “It’s early days yet- we’ll just have to watch this space.”