Templeton’s Mark Mobius, who helps oversee about $25 billion in emerging market assets, remains a long-term bull. Yet he thinks that Dubai’s attempt to reschedule DP World’s debt may spur a 20% global market drop, given that it’s about time for the market to correct.
“This may be the trigger to allow for the market to take a rest and pull back,” Mobius said in a Bloomberg TV interview by phone from Hanoi. “I felt that there would be a significant correction in what is an ongoing bull market,” he said. “If Dubai has to default, that could start a wave of defaults in other areas.”
According to Mobius, who was voted among the “Top Ten Money Managers of the 20th Century”, a 20% correction is not unusual in such a bull market. “We should be ready for that,” he said. “There’s no way that anyone can specifically predict exactly when and to what extent, but certainly there will be corrections along the way,” Mobius added.
Stocks retreated for a second day Friday, government bonds jumped and credit-default swaps on DP World climbed by a record 163 basis points to 522 basis points, according to CMA, after the state-controlled company, Dubai World, burdened by $59 billion of liabilities, asked creditors for a ‘standstill’ agreement as it negotiates to extend maturities.
Dubai has accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year.
Standard & Poor’s and Moody’s (MCO) on Wednesday downgraded its ratings on several Dubai government-related entities once the restructuring plan became public. “The rating actions are the result of the announcement on November 25 of the restructuring of the debt obligations of Dubai World and Nakheel. Such a restructuring may be considered a default under our default criteria, and represents the failure of the Dubai government to provide timely financial support to a core government-related entity,” S & P said in a statement.
Investor concern is growing because the emirate hasn’t disclosed how it will pay more than $9 billion of debt coming due in the next four months.