Markets seem to have forgotten that not all United Arab Emirates are the same.Panic-selling in Dubai-related credit has spilled over into the debt of the UAE capital, Abu Dhabi, as well.
Thing is, Abu Dhabi and Dubai are far different animals. One is swimming in capital while the other’s solvency is in question. As shown below, the debt burden of Dubai is far worse than that of the United Arab Emirates as a whole. According to Morgan Stanley, the UAW has a lower debt burden than oil-rich Saudi Arabia even!
[image url="http://static.businessinsider.com/image/4b20a2ce00000000002bd31f/image.jpg" link="lightbox" caption="" source="" alt="Dubai" align="left" size="xlarge" nocrop="true" clear="true"]
Thus bond manager giant PIMCO has realised that spill-over panic-selling in the debt of Dubai’s rather rock-solid neighbours is a buying opportunity. As efficient as some people like to think markets are, this is yet another example of how during periods of panic they clearly aren’t. PIMCO will likely make a killing.
Bloomberg: Pacific Investment Management Co., which runs the world’s biggest bond fund, is buying the debt of Abu Dhabi, Qatar and Ras Laffan Liquefied Natural Gas Co., said Michael Gomez, co-head of emerging markets at the fund manager.
Pimco added to its holdings of securities sold by governments and companies in the region as the Dubai debt crisis slashed prices of bonds sold by its state-controlled companies to record lows.
“We’re coming in and buying,” said Gomez, who is based at Pimco’s main office in Newport Beach, California, in an interview with Bloomberg Television. “In any selloff, we’ll be accumulating even more. We think they’re cheap.”