Dubai shows limits of government rescues: Das

Stock volatility will probably jump as countries and companies default on loans, said Das, the head of market research and strategy at RGE, the advisory firm founded by economist Nouriel Roubini.

Shares slumped from Shanghai to Brazil and European shares fell the most in seven months yesterday after Dubai World, the government investment company burdened by US$59 billion of liabilities, sought to delay repayment on much of its debt. Governments have spent, lent or guaranteed US$11.6 trillion and central banks held interest rates near zero percent to end the first global recession since World War II.

“We're bound to see a rise in risk aversion,” Das, who is based in London, said in an interview. “The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can't make all the excesses simply disappear. We still have to work out those balance sheet stresses. The recovery is proceeding, but significant challenges still lie ahead.”

Bank Writedowns

Banks wrote down or lost US$1.7 trillion from the collapse of the subprime mortgage market and raised US$1.5 trillion since the credit crunch began in 2007, data compiled by Bloomberg show.

“In some countries and sectors, debtors will be able to get by because government intervention has made it easier for them to refinance,” said Das. “In other places, excessively leveraged debtors, who always get access to too much credit during a boom, cannot roll over their debt and will default.”

Das, the former head of emerging-markets strategy at Dresdner Kleinwort, joined RGE last month to lead a new team that advises investors on allocations in stocks, bonds, interest-rate products, commodities and currencies in developed and emerging markets. Roubini, an economics professor at New York University and chairman of RGE, predicted the financial crisis that spurred credit losses and asset writedowns at global financial companies.

1|2|Next Page>>

SharePrintEmail

Write a Comment

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos Respond to this email