The World economy is expected to tumble again; this time the threat comes in the form of the devastating economic condition in Dubai marred by the piling debts. The fear started to rise with the news about the Government investment company, the Dubai World revealing its intention to restructure its debts due to its inability to repay. Dubai World has accumulated almost $60 billion. It has proposed to postpone payments to its creditors, thereby creating a doubt about payment default in the minds of the investors.

The Dubai debt crisis already has its affect on the World markets that opened on an unfavorable note this Thursday morning. The Asian markets have showed a dip with the Nikkei falling by 1.64%, the Topix by 1.26%, the Straits Times by 1.1% and Hang Seng down by 2.76%. The BSE sensex fell by 2% and the rupee fell 24 paisa to 46.55 against the US dollar. Majority of the European indices registered a decrease of 2% as the Asian markets toppled. The Royal Bank of Scotland PLC went down by almost 8%. The Deutsche Bank in Germany was the biggest faller on the DAX down by 6%. The US markets remained closed on Thursday due to Thanksgiving.

Today the Indian market has pressed the panic button when it opened huge gap down. Realty and banking were the worst hit sectors in the markets today. At the intraday low sensex has crashed 650 points from its previous close due to the Dubai debt crisis. In the second half the markets recovered when traders started buying quality stocks at lower levels. HDIL, HLD, Unitech were down by 7-10% each today.Finally sensex closed 222 points down from the previous close.

Every dip should be considered as an opportunity to accumulate good stocks at cheaper rates for short to medium term returns. Currently the US markets which are open for half day trading session is down by 1.48% in Dow and 1.73% in Nasdaq. In my opinion the Dubai Debt crisis should cool down fast and markets will recover sooner than later. But we need to check out the impact on the overall economy as it may impact the growth which has started after a long time of recession.

The Banks that lent funds to Dubai World have also seen a fall in their stock prices. So me names include HSBC Holdings, Lloyd’s Banking Group, Credit Suisse Group, Barclays and the Royal Bank of Scotland. The fall was in the range of 3-4%.

In Asia, India would be the biggest economy that could be affected by the Dubai crisis. There is a threat that the thousands of Indians working in the United States of Emirates might lose their jobs. The situation would worsen for India which receives about 25% of its total remittances from the UAE, in case the Dubai crisis blows up in proportion like Argentinean and Russian crises which shook the world economy in the past.

If no favourable message is conveyed, there would be chaos with the NRIs returning to India and the remittances being badly affected. India would be hit hard compared to other nations. Indian stock market has already faced the blow with the rupee falling against the dollar and a dip in the share prices. The World economy that has just started reviving from the gloominess caused by the recession early this year is not in a position to absorb the shocks of the Dubai debt crisis.

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