I was flipping across the newpaper and saw the list of countries which are next to iceland ready to file bankruptcy, O My God!!! Now forget about corportate or banks, it is the turn of country to default.....Hmm. I started getting into detail not to understand what these default meant for me or for market but to see if our own country, India is there on the list or not? Thank God, it wasn't there. To be very frank I felt relief, because with rising crude we were also in huge trade deficit, and RBI with just $250-300bn in kitty, Is that enough? I don't know:-)
Credit markets in the US and Europe were battered by the flight from risk as recession fears and the unwinding of leveraged bets by bank trading desks and hedge funds pushed the cost of protecting bonds against default sharply higher.
* Asian stocks slump on fears about global economy, earnings
* Credit spreads surge on Argentina pension move
* Dollar hits 2-yr high Vs basket of currencies
* Oil slumps to below $70 a barrel
With fear of defaults from Argentina and Pakistan, everybody is a net protection buyer in the emerging world. Pakistan central bank Governor Shamshad Akhtar is flying to Dubai today to hold talks with the International Monetary Fund on a bailout to prevent the nation from defaulting on its debt, which is perceived by investors as the riskiest in the world after Argentina. Hungary, Iceland, the Ukraine and Belarus are also seeking assistance from the IMF to help weather the global financial crisis.
Asian stocks slumped to their lowest since December 2004 on Wednesday as poor U.S. corporate results and falling commodity prices fanned worries of a protracted global economic slowdown. The cost of protection against defaults in Asian debt spiked to records after Argentina moved to take over its private pension system, and as fears over debt defaults rocked confidence in emerging markets.
Some Asian companies have been caught off guard by how much credit markets have tightened, which constrains their access to capital, as well as the pace at which global demand has dropped. "As the credit crunch has worsened, wholesale business inventories have risen, causing an alarming rise in inventories in Asia and emerging markets at a time when seasonally these are usually being drawn down".
"We would expect earnings to be further revised down within Asia and global emerging markets". The cost of protection against a default in Asian debt surged amid concerns about the deteriorating health of emerging markets. Pakistan, for example, is feared to be in critical condition due to dwindling foreign exchange reserves.
That has raised fears about policy responses in emerging markets, especially following news on Tuesday that Argentina will take over its $30 billion private pension system in order to guarantee payments to retirees.
JK, Equity Research Analyst,
HBJ Capital, India
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