Guest post: EM debt risk – the devil is in the detail | beyondbrics:
"Investors in US dollar-denominated bonds issued by emerging market corporates are worried that the greenback’s rise, together with a broad decline in EM currencies, could increase the risk of defaults on their holdings. How worried should they be?
Those now ringing the alarm bells about US currency risk in the EM corporate debt market are doing so because of what they see as the big picture: a systemic risk caused by many companies financing domestic assets with foreign currency liabilities.
Focus on borrower exposure
Are they right? In this instance our research leads us to conclude that investors who are focused on the detail – that is, individual borrower risk – may have a better handle on the situation than those who assume that US currency risk applies equally to all EM companies with US-dollar debt."
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