THERE is a danger to listening to powerful politicians in Greece and Belarus. They may not know what the heck they’re talking about.
Exhibit A: Bank stocks in Athens lost about $11 billion (R127bn) of their value after ministers in the newly formed government made some populist proclamations, namely, pledging to increase the nation’s minimum wage and halt privatisations.
Deputy Prime Minister Yiannis Dragassakis told people to essentially ignore those comments yesterday, saying they were the product of inexperienced officials speaking out of turn. Greece is, he said, “interested in attracting investors”.
Exhibit B: The president of Belarus, an Eastern European nation with a population half the size of New York state’s, today raised the prospect of restructuring its external debt. Within hours, the nation’s $1 billion of dollar-denominated bonds due this August lost $270 million of their value.
But, wait, did the president say restructure?
It was all just a big mix-up. What he meant to say was refinance, not restructure, said the Belarus Finance Ministry in a subsequent website statement. (A refinancing, it should be noted, is a run-of-the-mill transaction where a borrower rolls over maturing debt into new securities; a restructuring is a transaction typically carried out by distressed borrowers looking for debt forgiveness from creditors.)
“The question of restructuring debt is not being discussed,” according to the statement from the Finance Ministry of this former Soviet Republic. The bonds quickly pared some of their losses.
All of this makes for something of a buyer beware moment. It’s a reminder that when wading into the world of emerging markets in search of higher returns – and isn’t Greece a developing nation at this point? – there’s no shortage of risks.
Developing nations, which may have less experience dealing with the whims of capitalistic bond and stock traders, have sold a record amount of debt to US-based investors. The pool of outstanding dollar-denominated, emerging-market debt has tripled in the past five years to $1.6 trillion, according to Bank of America Merrill Lynch index data.
Of course, just because these nations tend to have more volatile policymakers than, say, Federal Reserve chair Janet Yellen, does not mean they are always a bad investment. Some bond buyers are delving into the riskiest corners of the world at a time when about $4 trillion of sovereign debt globally have negative yields.
For example, Mark Yusko, who heads Morgan Creek Capital Management LLC in Chapel Hill, North Carolina, said he liked Greek bonds and stocks quite a bit. It’s hard to blame him for being tempted by the more than 10 percent yield on 10-year Greek debt when similar-maturity German bunds yield 0.4 percent.
Whether he is right or not, one thing is almost certain. There will be hiccups along the way. – Bloomberg