Dubai cisis to shape 2010 global risk mindset

Dubai's debt crisis may not sow lasting global contagion, but it may colour a 2010 investment landscape where asset managers will likely
differentiate more between risks rather than embracing them indiscriminately. The global market sell-off after last Wednesday's Dubai bombshell on delaying debt payments from its state-owned conglomerates lasted only two days. World stocks have bounced back 2.5 percent this week. For all the ripples this aftershock of the credit crisis will create, the direct material impact of any debt rescheduling on international banks or governments outside the region pales in comparison to an event like last year's bankruptcy of Lehman Brothers, for example. Of the $26 billion affected by the rescheduling, analysts reckon no more than 50 percent is held by global banks, and individual lenders can absorb that sort of hit. Credit ratings firm Moody's said on Tuesday it saw no reason to alter international bank ratings due to developments. But while there's little rationale for direct contagion, the implications may seep through market psychology for many months to come. The event was a reminder of the excessive leverage the world is still trying to shed and triggered what many investors, including giant US bond fund Pimco, saw as a much-needed correction to 2009's surge in risky assets and emerging markets. While many may see this as a good opportunity to re-enter the market, they will likely be more choosy on their return. "Fundamentals will become more apparent again. It's the theme that will carry on in 2010. It's going to become much more discerning. We do appreciate next year will be turbulent for investors," said Rekha Sharma, global strategist at JP Morgan Asset Management. CAVEAT EMPTOR Growth-sensitive emerging market assets were the main beneficiaries this year of the wholesale shift out of low-risk, low-yielding money market instruments that took place since March of this year. But the liquidity and growth landscape is set to change next year as Western central banks seek to time their exits from super-cheap money policies flooding the world and as many emerging economies attempt to frustrate speculative flows with a variety of controls, taxes and state intervention. As a result, country-specific risks are rising in the face of recent capital curbs by the likes of Brazil and Taiwan. Reflecting these rising idiosyncratic risks, for example, Brazil has moved to the top of Swiss bank UBS's growth surprise rankings followed by China, Korea and Poland.