Readings: Exotic Stocks, Subprime hits ICICI, Satyajit Das on CDS
- Wall Street Journal: Exotic Stocks: Investors Flee, But Pros Don’t
This year through Feb. 27, investors have pulled a net $14.3 billion out of emerging-market stock funds, according to EPFR.
But many professional investors are getting more bullish on emerging markets, betting some of them will be a haven from an economic slowdown in the developed world. The average global stock fund had a roughly 9% allocation to emerging markets at the end of January, according to EPFR, up from 5.8% at the end of May.
Managers say they’re bullish on countries that are positioned to benefit from soaring commodity prices, such as Brazil.
- Prudent Bear: The Credit Default Swap Market - Will It Unravel?
A CDS protection buyer may have to put the reference entity into bankruptcy or Chapter 11 in order to be able to settle the contract. A study by academics Henry Hu and Bernard Black (from the University of Texas) concludes that CDS contracts may create incentives for creditors to push troubled companies into bankruptcy. This may exacerbate losses in case of defaults.
Currently, a significant proportion of protection sellers is financial guarantors (monoline insurers) and hedge funds. Concerns about the credit standing of monolines are well documented. Recently, a number of banks took charges against counterparty risk on hedges with financial guarantors including Merrill Lynch (US$ 3.1 billion) Canadian Imperial Bank of Commerce (”CIBC”) (US$2 billion) and Calyon (US$1.7 billion).
- Business Standard: ICICI Bank in focus again on forex credit derivatives
ICICI Bank, the country’s second largest lender, on Tuesday said it would have to make an additional provisioning of $70 million in the current quarter for mark-to-market (MTM) losses on exposure to credit derivatives of its overseas branches and subsidiaries, with spreads widening further on continuing impact of the sub-prime crisis.
The total depreciation losses as on January 31, 2008, on collateralised debt obligations (CDOs) and credit-linked notes (CLNs) held in its overseas operations amount to $264 million.
Check out some of the recent posts at Deepak’s blog for a better understanding of the impact of on ICICI stock.
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