CLSA: Asian assets safe haven in Dubai World case

The Dubai Ministry of Finance's request for Dubai World to halt financing has rocked global markets. In an environment like this, Asian assets should be a safe haven, as the Asian model since 1997 has focused on strengthening balance sheets, CLSA says. However, some Asian nations are vulnerable, including India, Australia and Korea, CLSA says.

The fact that debtor countries - especially where liabilities are in foreign currencies - are most vulnerable has already been demonstrated in the financial markets, CLSA says. So far Eastern Europe seems to have been overlooked, but must also be judged vulnerable, as must the countries that have supplied a lot of the loans - watch European Union banks closely, but also those of Switzerland. CLSA recommends buying into Asian asset-price weakness.

The fate of Dubai itself, and therefore lenders with Dubai exposure, is an internal political matter within the United Arab Emirates (UAE), the bank says. Abu Dhabi's balance sheet is as strong as Dubai's is weak. It sits on nearly all the UAE's oil revenue and has already subscribed to US$5 billion of Dubai debt. The UAE is solvent (and liquid) as long as Abu Dhabi is willing to act as a backstop, CLSA says. CLSA expects Abu Dhabi to do so again, but the immediate problem is that this cannot be guaranteed, as transparency is low.