BIS: Dubai debt crisis shows investor confidence 'fragile'

GENEVA: Investor confidence remains "fragile" despite the improving global economy, the Bank for International Settlements said yesterday, highlighting the nervous reaction of markets to Dubai's debt woes.

"From early September to late November, a steady stream of mostly positive macroeconomic news reassured investors that the global economy had in fact turned around, but investor confidence remained fragile," the BIS in its latest quarterly overview on financial markets, "This was clearly illustrated towards the end of the period under review, when prices of risky assets dropped sharply as investors reacted nervously to news that government-owned Dubai World had asked for a delay in some payments on its debt," added the BIS.

On November 25, Dubai World, the emirate's largest conglomerate, sought a freeze on payments, sending jitters through global financial markets.

The BIS, noted that the Dubai debt freeze also sent demand for safe government bonds soaring. Overall, it assessed that investors were betting that global economic recovery would continue.

At the same time, market players were "wary about its pace and shape due to uncertainty about the timing and speed of withdrawal of monetary and fiscal stimulus as well as the associated risks to future economic activity." "The unease was compounded by the unevenness of recovery among different regions of the world," added the BIS.- AFP