A loyal MR reader sent me the following from Reuters:
Bombings and strife
apart, Iraq is proving an oasis for investors battered by global financial turmoil, Citi argued in a research note on Thursday.The cost of insuring country-region Iraq’s
bonds against default has fallen so sharply that they now costs less to insure
than Venezuelan debt, said Citi economist David Lubin. "Judging from
the performance of spreads in the market for sovereign credit risk, one could
argue that Iraq has become something of a safe haven in recent months," he said.Oil-exporter Iraq has
benefited from an improvement in its foreign-exchange reserves. Iraqi five-year
credit default swaps — instruments which protect against debt default –
tightened to 520 basis points from around 635 bps at the start of the year. Similar
instruments for Venezuela,
whose President Hugo Chavez is leading a wave of takeovers to wrest companies
from private and foreign ownership, are currently trading at 611 bps. Like
their developed counterparts, emerging markets have been hit by a deepening in
risk aversion in the wake of the credit crunch sparked by U.S. subprime
mortgage defaults.Lubin said chances of a further decline in Iraq risk premium were strong given
the country’s fiscal discipline but warned that the central government could
face challenges from the rising influence of provincial rulers.
As I interpret the email from my source, he is not personally so bullish on Iraqi reconstruction; rather some people are rushing out of other assets and preferring Iraq for its (relative) safety. So you needn’t read this in an optimistic light. Alternatively, you might view this as a bet on the U.S. Presidential race and the rising prospects of the Republicans.
Or they could just be assuming that the US will be propping up the Iraqi government — and by extension, its government bonds — for at least the next five years.
Soooo. Corporate bonds in iraq are to be measured against those of a country with an active policy of nationalizing companies? That’s absurd on face. Hmm. As I read that more I guess they are comparing sovereign debt rating. Well, I still think it is absurd as the infrastructure of venezuala is highly dependent on outside corporations involving themselves in a situation that might end in having their assets seized.
And I’m not one to question broadly the EMH but I don’t think that investors comprehend fully the problem in trading on future expectations of Iraqi wealth and stability as they are based almost entirely on oil revenue. that revenue is dependent upon US protection of export routes for oil–both in existence and efficacy. I presume that markets can properly judge risks of future larger fluctuations in oil prices, so that isn’t really a big deal (and is dealt with anyways by comparing iraq to another country at least nominally alike in exports).
Riding off of US defense subsidies always help: see Europe and Asia – in the case of Iraq it was the US that was responsible for bringing Iraq to its current situation however from its somewhat more “stable” situation.
latam countries have a long, proud history of defaulting on their sovereign
debt for almost any reason. add a leader who openly flirts with defaulting
and has nationalised several companies and you can see why vene debt is priced
accordingly.
You might not have caught it, but recently Venezuela nationalized Ternium Sidor, the largest steel maker in Venezuela, as well as Cemex’s Venezuelan cement operations. Also Venezuelan armed forces occupied 32 sugar plantations spanning 5,900 acres Thursday.
Plus Venezuela just put in place a windfall profits tax on private oil companies…50 percent of oil revenues above $70 per barrel and 60 percent of revenues above $100 per barrel.
If you have to buy some holic online gold, please come to our company.
The war is so terrible. Let’s pray for peach together
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