Home > Perspective > The U.S. Debt and Emerging Market Opportunities

The U.S. Debt and Emerging Market Opportunities

I wanted to put a quick note out regarding the U.S. debt downgrade and the events of the past week as we have been getting a number of questions from readers and twitter followers. Standard & Poor’s potential downgrade of U.S. debt had been signaled for a few weeks, so it did not come as a complete surprise. In fact, some smaller rating agencies had already downgraded the U.S. Nonetheless, the initial market reaction will likely be a high degree of uncertainty and volatility, since investors will likely not know where to turn for assets with lower short-term volatility. During the subprime crisis, investors largely sought such assets in U.S. Dollars and Treasuries. While during the subprime crisis the USD index was high, now it is low reflecting a changed perception of markets that may be considered less volatile in the short-term.  In particular, we believe currencies and stocks of emerging countries may look relatively attractive given: (1) emerging markets generally have more foreign reserves than developed countries and (2) the debt-to-GDP levels of emerging countries tend to be lower than developed countries. This improved ability to manage their currencies and historically better ability to service debt is why we believe emerging market currencies have been so strong – and may continue to be.

Categories: Perspective
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s