Standard Chartered has warned that credit markets in the Gulf could undergo a "major sell-off" if Greece abandons the euro, as world markets lurched through further choppy trading sessions and the troubled European currency fell further.
The London-based bank, which generates most of its income in Asia, Africa and the Middle East, said Greece returning to the drachma would lead many emerging market indexes to fall further, even though the threat of a divorce from the euro zone has already rattled markets for many months.
"For the Asian and Gulf Cooperation Council [GCC] credit markets, we would expect a major sell-off in the event of a Greek exit from the euro area," the bank said in a research report.
"A Greek exit from the euro area is likely to see emerging-market equities retest the valuation lows reached at the time of the Lehman bankruptcy, at least in the short term."
Greece's future in the euro zone, along with its €130 billion (Dh594.2bn) bailout from the IMF and the European Union, have been thrown into doubt after elections this month failed to produce a government.
New elections are set for June 17, with some opinion polls showing a reversal of earlier support for parties opposed to widely unpopular austerity measures.
The euro fell to a two-year low in trading yesterday, losing as much as 0.8 per cent against the dollar to $1.2424, a level not seen since July 2010.
But the biggest impact for the Gulf of a Greek euro exit would be on Asian economic output and the demand for oil, Standard Chartered added.
"The GCC's external revenues depend on Asia now; the biggest risk would come from a collapse in oil demand and prices, and debt financing would also suffer," the report said.
The price of crude has plunged since Greece's inconclusive election on May 6. Brent crude futures have fallen $7.57 to $106.04 per barrel since then, while Nymex crude has lost $7.73 to $90.76, an eight-month low for the American benchmark.
The euro-zone sovereign debt crisis has sparked a withdrawal of European bank lending lines from the Gulf, as banks seek to shore up their capital buffers against a looming tide of bad debts expected if Greece is forced out of the euro.
"Tight credit has been prevalent in the region in the past few years, and a more acute shortage of bank liquidity would cause credit to tighten even further, both for the households and for corporates and sovereigns wanting to tap debt instruments," the report added.
Bank lending in the UAE ground to a halt during the first three months of this year, with banks able to grow their loan books only through lending to arms of government.
ghunter@thenational.ae
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Tips from the expert
Dobromir Radichkov, chief data officer at dubizzle and Bayut, offers a few tips for UAE residents looking to earn some cash from pre-loved items.
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Nepotism is the name of the game
Salman Khan’s father, Salim Khan, is one of Bollywood’s most legendary screenwriters. Through his partnership with co-writer Javed Akhtar, Salim is credited with having paved the path for the Indian film industry’s blockbuster format in the 1970s. Something his son now rules the roost of. More importantly, the Salim-Javed duo also created the persona of the “angry young man” for Bollywood megastar Amitabh Bachchan in the 1970s, reflecting the angst of the average Indian. In choosing to be the ordinary man’s “hero” as opposed to a thespian in new Bollywood, Salman Khan remains tightly linked to his father’s oeuvre. Thanks dad.
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Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
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- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
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- Disruption Lab and Research Centre for developing entrepreneurial skills
Abu Dhabi Sustainability Week