Dubai Crisis - All you need to know

What is Dubai Crisis

UAE's largest corporation, Dubai World Conglomerate has asked for agreement for 6 months delay in repayment on it's close to sixty million dollars of debt. Default by Dubai on payment of the debt could trigger off the next set of bankruptcies, and since Dubai is well connected to other financial centers of the world it could easily boil over into something huge. As it is the festival of Id , no information is forthcoming which is making the whole financial world fidgety.

What is the reason of this crisis

Dubai real estate, fuelled by cheap loans and inflow of foerign invesments created a bubble over the last five years. Now home prices in Dubai have plummetted to 60% their peak value in 2008.
On this note, yesterday on a TV channel one analyst was seen remarking that Dubai crisis will fuel Indian real estate market. Well is the existing bubble in Indian real estate market not sufficient ???

Why it affects India and other parts of the world

Do you remember what was the starting point of 2008 crisis ? Iceland debt crisis. Dubai firms have huge real estate investments in major cities around the world. There is huge Indian population in Dubai. Any trouble will start off a huge unwinding in real estate, which will drive the asset values even lower across the globe thus signalling the end of any recovery from the recent recession.

What next ?

There are talks that Abu Dhabhi, which is rich in oil, and which continues to enjoy a real estate boom and is financially strong, will bail out Dubai. However due to holy festival of Id, no information is forthcoming.

What should we do ?

As investors, we should watch for information coming out of ther region. Avoid making decisions based on TV analysts. Always make your own decisions to buy and sell.
If a crash happens, look for value stocks which have strong fundamentals.
If crash doesnt happen, look for growth stocks and new oppurtinites stocks.
Always remember, every stock has an intrinisic value, which will be visted repeatedly, as the market makes its waves.