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Curtis Mewbourne discusses what Ecuador’s recent default means for emerging market investors in PIMCO's latest Emerging Markets Watch titled 'Rewind or Fast Forward?'
The document is available for download on the Opalesque site at the link below. Mewbourne further explains that "in emerging market external debt
there will be a significant differentiation
between the countries and companies that
have access to insurance, either via selfinsurance
or external support, and those
that do not.
We would argue that default
probabilities for countries like Brazil,
Korea, Mexico and Singapore remain very
low, and that current spreads for their
sovereign debt represent a compelling risk/
return opportunity. At the other extreme,
we would argue that access to finance
will be significantly reduced for countries
with unorthodox economic strategies,
and therefore the possibility of defaults
will likely increase markedly for these
types of credits.
How emerging markets can break away from the current crisis
Second, extremely low policy rates in
the US, Japan and Europe and the sharp
slowdown in global economic activities
will create the scope for lower policy rates
across many emerging economies. Further,
because the current global crisis started
in the developed economies, the many
emerging economies that entered this
crisis with improved balance sheets have
an opportunity to break from past crises,
when the typical EM policy response...................... To view our full article Click here
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