Dubai’s main stock exchange dropped more than 7% on Monday, the first day of trading in the United Arab Emirates since Dubai World announced it was struggling with its $60 billion debt.
Shares of DP World, a profitable port operating division of the debt-ridden Dubai World, were off nearly 15% in early trading when the market opened.
The overwhelming majority of companies whose shares traded on the Dubai Financial Market, the city-state’s main bourse, were also deeply in the red.
“The sentiment is gone from investors’ perspective,” said Mohammed al-Ghussein, managing partner of Atlas Financial Services in Dubai. But “we expected that since we heard the news last week.”
The drop eclipsed the declines seen in world markets last week after Dubai officials on Wednesday announced that Dubai World, the emirate’s chief investment and development engine for years, would seek a six-month delay in paying creditors.
The news stoked fears that the conglomerate - and the emirate’s - debt woes could be a symptom of broader financial instability elsewhere in a still fragile world economy.
The steep fall came as UAE markets opened for the first time since an extended Islamic holiday that began on Thursday. Investors have had several days to digest Dubai World’s news, and clearly found it unpalatable.
Investors remained uncertain how Dubai would deal with its debt mess. Officials from the emirate have been meeting with their neighbours in Abu Dhabi, the oil-rich city-state that is home to the UAE’s federal government.
In an effort to ward off the possibility of a run on the country’s banks - many of which are shouldering big chunks of Dubai’s at least $80 billion debt - on Sunday the UAE’s central bank pledged to stand behind foreign and domestic banks in the country with an offer of cheap money.
The central bank’s move appeared to indicate that Abu Dhabi was not prepared to let its troubled cousin collapse, if only because of concerns about the broader impact on the country’s economic welfare.