Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (21723)	8/29/2007 11:14:39 AM
From: elmatador	Respond to of 217977

Emerging market debt is the new safe haven Reports of subprime upheavals, leveraged structured credit blow-ups, stutters in the commercial paper market and big losses for holders of illiquid AAA debt all look familiar to the emerging debt investor of 10 years ago - “if from a distance and in a different context”, notes Jerome Booth, head of research at Ashmore Investment Management, in the FT’s Wednesday Insight column. The key ingredients, according to Booth, are: “An underlying credit problem, a largely homogenous base of investors not fully aware of the credit risk when they bought and who try to rush for the exit all at the same time, and a high degree of leverage to exacerbate the rush and create contagion as ‘good’ assets are sold to meet margin calls and cover losses on the ‘bad’.” Risk tends to be seen by many as binary, says Booth: “Once it is deemed non-risky, risk is simply ignored. However, everything is risky,” he says. Hence, his definition of an emerging market: All countries are risky; the emerging ones are those where this is priced in. People also talk of US Treasury yields as the risk free rates, which translated another way means that US Treasury risk is priced at zero, which it clearly is not (it has plenty of dollar, yield curve and mark-to market risks). The riskiest high yield carry trade currencies are not those in emerging markets like Turkey or Brazil, but the developed market ones like Iceland and New Zealand - in part because “investors are complacent, creating a larger imbalance than possible for an emerging market”, notes Booth. This lack of perception of risk in the G7 countries today is different to the emerging markets of old, where risk may have been mispriced but was never priced near zero, he adds. Emerging market contagion of the past was encouraged by leverage in the market and the homogeneity of the investor base, plus the vulnerability of countries to external shock, notes Booth. “Today the investor base is much more diverse, institutional, long only, unlevered, and significantly underweight with a buy-on-dip mentality.” The countries themselves are much less vulnerable to external shocks, often with better debt ratios than developed countries, stronger reserves, low inflation and strong current account and fiscal surpluses. If central banks’ main risk is too big a concentration in US assets, then non-G7 sovereign debt is often a better risk reducer than other G7 sovereign debt. So emerging debt is the new safe haven. We only hope that there are enough people who do not believe me and sell emerging assets anyway, allowing us to buy paper more cheaply.