Alice In Wonderland Economics?

by | Dec 30, 2001 | Archives

Argentina's collapse should create worries about emerging markets. Right? Guess again and read this message.

Dear International Friend,

In eras past the default of a major debtor to the tune of 130 billion (as in Argentina), would send shock waves through other emerging markets. Not this time. South Africa's rating just rose a notch and Russia's credit rating jumped two.

You can learn more about this at Jyske Bank's web site analysis this Adobe Acrobat file

The change is caused by many factors, the first being that clever investors see how money will still be made in Argentina (see our previous messages on this at and The global investment community expect the world to still bail Argentina out and that much of the debt will be paid. Hence those who buy at a huge discount will still gain profit. Second this encouraging news shows a renewed confidence in the emergence of the third world. Perhaps events last September reinforced the need for more wealth in all nations and maybe undermined the fiction that industrialized nations are totally safe. Japan had its rating dropped two notches this year and we now know that no nation is free from terrorism and attack.

Long term fundamental trends suggest that investing in major markets currently has more risk and less potential than emerging markets. We have also looked in previous messages at how earnings fundamentals (see article about Jeremy Grantham and PE ratios)support investments in emerging markets as well. This means looking at markets and debt in countries such as Argentina, Ecuador and others that are similar makes more and more sense. If in doubt remember my first recommendations to invest in Hong Kong in the 70s caused many to question my sanity. Yet this turned out to be among the best investments in the world. What was safe in the past will not be the blue chip of the future.

Until next message, good global investing!