Manna from Abu Dhabi

12/17/2009 10:32 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

How good it must feel to see the check from a rich uncle beat debt collectors to the mail slot. To surprise former friends who've stopped inviting one to parties. It felt 10% better than good in Dubai, which is how much the local stock market shot up on Monday, after Abu Dhabi came through with a $10-billion loan to keep Dubai's debt-ridden and state-owned property developer from defaulting on Islamic bonds.

Better to rescue one's spendthrift relations than to tarnish the reputation of the entire United Arab Emirates, Abu Dhabi's ruler had decided.

After tumbling 27% in the three weeks since Dubai demanded to renegotiate its flagship companies' debts, the Dubai Financial Market index has now reclaimed half of that lost ground. And lest creditors lose touch with sweet reason in the wake of the latest bailout, UAE is also rushing through a new bankruptcy law. Lenders who refuse a haircut probably won't find its provisions comforting.

Dubai will pay 4% per annum for its handout, and if this seems low, consider that the other recent sovereign credit pariah, Greece, has just sold nearly $3 billion in debt at a variable rate currently pegged at just 3.5%. And that was to private investors presumably acting on a profit motive—however slender a reed that may prove to be.

The austerity program hastily sketched by Greece's Socialist government after last week's credit downgrade (Standard and Poor's chimed in with its own version yesterday) was dismissed by skeptics as so much window dressing. But Greece can still borrow cheaply because its own rich uncle—that would be Germany, which lends the European Monetary Union its credibility—continues to enjoy excellent credit.

Spotting the next credit blowup has turned into a global sport: the latest scare making the rounds concerns Austrian banks saddled with dubious Eastern European loans. But the bigger picture here is that none of these manmade disasters has altered the growth outlook for Asia and Latin America, which no longer rely on capital inflows. All they need are healthy export markets, and there are far fewer worries on that score than was the case as recently as October.

Exports are up 10% year over year in Indonesia, which in stark contrast to the likes of Greece and the US, boasts "a sound fiscal policy, good balance of payments, and declining government and external debt ratios," writes Yiannis G. Mostrous. He recommends the Market Vectors Indonesia Index ETF (NYSE: IDX), as well as PT Telekomunikasi Indonesia (NYSE: TLK), the country's biggest telecom.

Closer to home, there are less volatile plays on a global recovery that no one dares doubt any more. Carla Pasternak warms to the shipping and financial names based in Bermuda which, as a bonus, levies no withholding tax against dividends. No wonder so many reliable high yielders have washed up on its shores.

Meanwhile, Eoin Treacy links the bullish action in fertilizer stocks to the continuing spike in agricultural commodities. And the people who claimed all those green shoots were just weeds? They're chasing down banking rumors in Austria.   

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