China indices likely to shrug off Dubai debt woes

10:57, November 30, 2009      

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Dubai's debt problems may be sending world markets sliding, but the tumble in stocks in Shanghai and Hong Kong is not expected to extend into this week, according to financial analysts.

The state-owned Dubai World recently asked for at least a six-month delay on paying back its $60 billion debt. International experts have said that they fear Dubai's problems could reignite global financial turmoil.

But analysts here said that Dubai's problems will not have a lasting effect on Chinese markets.

"The impact is likely to be limited because Chinese major banks do not have much business directly related to the troubled company," said Fu Lichun, an analyst at Southwest Securities.

On Friday, led by price drops in major banks and construction companies, the Shanghai Composite Index fell 2.4 percent to close at 3,096.27 points, sending the index to its biggest weekly loss of 6.4 percent in three months. The Hong Kong Hang Seng ended 4.8 percent lower.

China's listed construction companies and major banks are now seeking to clear its involvement with Dubai World to maintain market confidence.

China State Construction Engineering Corp (CSCEC), the largest contractor in China, said on Saturday that it had no business relations with the troubled firm and its business operations in the Emirates would not be affected.

CSCEC's shares on the Shanghai bourse declined 2.64 percent to 4.79 yuan last Friday and China State Construction International, a Hong Kong-listed unit of CSCEC, plunged 7.02 percent to HK$3.18.

China's leading banks such as Industrial and Commercial Bank of China, Bank of China and Bank of Communications also said they have no exposure to bonds issued by Dubai World or have any business ties with the company.

Fu said that last week's fall is partly due to investors' worries spurred by Dubai's debt problems. But he said the slide was mainly driven by domestic factors, such as uncertainties about the market at the end of the year amid fears of potential asset bubbles.

Fu said that concerns about Dubai's issues may have already been priced in last week's fall and a rebound or stabilization may likely be seen in the market this week.

"The impact of the Dubai debt problems can hardly be compared to last year's bankruptcy of Lehman Brothers," Fu said. "The market is going to digest the negative impact quickly and get rid of the bad influence this week."

Meanwhile, China's fiscal and monetary policy remained unchanged as the Political Bureau of the Communist Party of China Central Committee, China's top decision-making body, pledged to maintain its active fiscal policy and relatively loose monetary setting.

But market experts said China could learn from Dubai's debt problems to avoid a similar crisis, especially in the real estate sector.

"The Dubai problems showed us real estate investment could be a double-edged sword that can substantially drive the economy but can also hurt it badly. So China shouldn't overlook the asset bubbles in its own real estate market," said Ma Guangyuan, a researcher with the Chinese Academy of Social Sciences.

Source: China Daily

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