Mkts overreacting to Dubai World crisis: Expert

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Dubai World, which runs 49 ports around the world has sought a standstill on its debts worth billions of dollars, which has sent shockwaves across global markets. Most markets have sold off and the ripples were also felt in the Indian markets. However, the Sensex recouped two-thirds of its losses, or over 400 points, closing at 16,632 down 223 points. It was a similar story on the Nifty, which ended 2% lower. Asian markets also saw 2.4%-4.8% cuts across the board.

In an interview with CNBC-TV18, Slim Feriani, CIO, Progressive Developing Markets, spoke about the impact it could have on markets going ahead.

Here is a verbatim transcript of the exclusive interview with Slim Feriani on CNBC-TV18. Also watch the accompanying video.

Q: Do you sense that this may have just been a temporary blip and now there is some consensus that hydrocarbon rich Dubai and UAE in general will see some bit of support from Abu Dhabi and eventually the government will buy most of this debt and provide guarantees?

A: We view this as quite an overreaction from global markets for what is a relatively small country and small player. Dubai is small and the level of debt we are talking about in the short-term of around USD 20 billion, and then an overall level of about USD 80 billion in the medium-term, you have to put things into context and. Just to add here, Abu Dhabi Investment Authority manages over half a trillion dollars.

So we do think that it is a big overreaction for a small country and small amount of money. But we could understand that markets have been waiting for something - any reason to take some profits and this is as good a reason as any. Therefore people just thought, let us sell and then see what happens. But we don't believe there would be a further fall in the markets going forward.

Q: We have seen some bit of panic selling across the banking space as well because of the entire debt repayment concerns that not just Dubai has but even across the Asian markets as well. Do you think this is just a minor incident and this space will see recovery or do you see further slippage in that sector?

A: We don't see fundamental reasons for a slippage. But it is all about sentiment and global markets have been doing well this year that there are a lot of people out there who have a lot of money so far this year in Asia, in emerging markets in general. Emerging markets are up over 70% year-to-date and Asia around the same level.

So a lot of people have been itchy about when to lock in this profit. We are heading towards the Christmas holidays and a lot of people would have liked to lock in their profits anyway. So this has probably spooked some global macro funds, hedge funds who decided well it was not worth waiting anymore. So that is what we are having now. It is that sentiment all of a sudden, which is of the view that there is no reason to wait any longer to lock in some of those profits.

But there is a lot of cash globally on the sidelines that will still go back in. So we don't use it as a reason to justify a 20% type of fall in the markets, but if it is 3-5-7% why not. But this is an overreaction to what is a minor thing in Dubai and it has nothing to do with the likes of Iceland for example when it blew up, the sub-prime crisis.

It is a very specific country issue. Abu Dhabi is one of the wealthiest countries in the world, and Abu Dhabi and Dubai are close.