My thought on Dubai World .....

I read a thread from a Forumer on Friday about a Dubai World defaulting its debt. I found it quite interesting. As far as I know, Dubai has been engaged with mega projects dealing with building of islands, the most luxury hotel in the world, ski resort in a desert, etc. It is situated in an oil producing country, money should not be a matter. Anyway, I did not care much about the news, that is until my friend text me a message " How will Dubai affect the market?"

To be frank, I don 't really care about news, because I suck in Fundamental, the only thing I am interested in is chart. Nevertheless, it led me thinking who would be those affected and targets for shorts.

Dubai has nothing except Oil, it uses the revenue from Oil to build mega structures to entice the rich to invest. Most of these mega structures are for luxury and cannot be afforded by common man. Imagine that they build islands just to build houses where you can park luxury boats in your back yard. The city also uses fossil fuel to desarinize water from the sea, a process which I believe is very unproductive. The richest person in the city actually has a car with body made of gold, not painted, but made. They even have a ski resort in the middle of the desert. To me what ever they did, it is pure waste of resources. Most probably money came so easily that they don't even bother to think about saving for a rainy day.

With such a default from Dubai World, 2 main groups of industries are affected, banks and contructions. But banks will come first. I believe the loans with American and European banks. The issue with banks is that they are all linked. If one fall, all others will join in like a domino.

With such defaults, the contructions will also come to a halt to cut cost. So those companies will also be taken into consideration for shorts. With the goes the suppliers for the machineries and employments.

Outside Emirates, those countries that depend on Middle Eastern tour will also be affected, however, this will be a longer term effect and might even be smaller. But certainly Singapore's neighbour Malaysia will not be spared. As far as I know, other than attracting tourist from the Emirates, they are also supplying Engineers to help the growth of Dubai. My cousine was once working in Dubai on Management Information Systems (MIS).

Probably those less affected or having the effect come later would be consumers, hotels, manufacturings. I doubt that they have a lot of export to Dubai unless it is a luxurious item (may be Rolex). Anyway, they are likely to be secondary parties in the event.

So which market would be affected tomorrow with the sell down (if it happens)? My guess are the banks. Probably the good news that might prevent this is that the Central Bank of the Emirates has already came out to provide support to the affected banks.

But no matter what, it is not good for Shortist in either way, if it goes down, it will gap and thus it will be too late for entry, if the issue is resolved to some extend, the market might even go up, which puts the shortist on the wrong side of the market.