The two news stories out of the Gulf today are connected to what I wrote yesterday. There was a big rally in the Dubai stock market on account of Emaar not taking on the real estate assets of Dubai Holding. I mentioned yesterday that would be a positive for Emaar but not for Tatweer investors. Also it came out that PIMCO has been buying Abu Dhabi bonds on the Dubai selloff and in the same post yesterday I said that credit markets were sure to draw a distinction between Abu Dhabi and Dubai. I'm happy to see my analysis born out but troubled by how quickly. I have to stay on my toes.
In other news the credit downgrade of DEWA, the Dubai electricity and water utility has triggered an acceleration of $2 billion in debt. This is explicitly part of and guaranteed by the government of Dubai and so it likely to be paid out of the $15 billion fund raised from Abu Dhabi if there aren't enough funds already at the Dubai Government level. While not an imminent threat it does erode the buffer between Dubai proper and it’s creditors. I don’t think the stock market rally will last and in any case if you are down 7% on Wednesday and up 7% on Thursday, you are not flat.