Global markets rebounded after taking a beating last week following Dubai's announcement that it may need an extension for the repayment of Dubai World and Nakeel's debt; but the events in Dubai could still hurt international investor sentiment towards emerging markets, analysts told CNBC.
Investor appetite to finance emerging markets, emerging market government debt, and borrowing for emerging market businesses, is where we will see the full ramifications of this, Matt Robinson, economist at Moody's Economy.com, said.
With investors already shaken and fearing that the full impact of the global financial crisis may not be over, speculation is rife on who may follow in Dubai's footsteps come 2010.
"The candidates are pretty much lined up," Beat Lenherr, chief global strategist at LGT Capital Management, said. "We will see more of the same in 2010," he predicted.
Emerging markets in Eastern Europe top the list of the next countries to default on their debt, according to Lenherr, because "there are a number of cracks in the system" in that area. Debt, whether it be government, a government-backed company, or a 'too-big-to-fail' company, will continue to be a problem, he said.
Eastern Europe has been a region of concern as it has been hit hard by the economic downturn and analysts worry that loans taken in the years of the boom by people eager to catch up to Western lifestyles will default as unemployment rises and living standards fall.
The International Monetary Fund predicted that emerging European economies will contract 4.9 percent in 2009. Hungary, Romania and Latvia have received aid from the IMF as well as the European Union to alleviate debt worries. European banks with exposure to Eastern Europe were particularly vulnerable as they lent in foreign currencies but people's revenues are in local currencies.
"Not all emerging markets are good. Not all investments in emerging markets are always good," Lenherr told CNBC. "We will have to be very careful in various emerging markets."
"Be well diversified and don't take big bets in any single country or any single currency," he suggested.
Another European candidate is Greece. The country's stock market took a beating last week on investor concerns about ballooning debt and deficits, affecting Greek bonds which are used as collateral by banks to raise money from the European Central Bank. Bank shares and the Athens bourse dived, but rebounded strongly Tuesday, with the main index going up by around 4 percent.
The country is a repeat offender under the European Union's budget rules, as borrowing costs jumped since the Socialists revealed 2009's deficit would climb to 12.7 percent of growth domestic product. The country could become the euro zone's most indebted member in terms of GDP next year.
Based on EU Commission forecasts, Greece's debt will rise to 124.9 percent of GDP next year, becoming the highest ratio in the 16-nation euro zone.