Argentina to Default?

The market appears to be pricing in the chance that Argentina could default on its sovereign debt (hat tip Mish).

Defaults are not everyday occurrences but they do come along every now and then. Venezuela seems to threaten to default every so often and Argentina did default earlier in the decade.

I took a look at a few funds to see which ones would be impacted. PowerShares Emerging Market Bond ETF (PCY) has no exposure. iShares JP Morgan Emerging Market Bond ETF (EMB) has a 1.66% in an Argentine issue that goes out to 2033 (an unrelated note: EMB has a small weight in a Gabonese Republic bond, wow, Gabon). The SPDR International TIP Fund (WIP) has no exposure--I own that one personally and for quite a few clients.

For closed end funds; the Templeton Emerging Markets Income Fund (TEI) had a 9.68% weight in some Argentine paper due in 2012 as of 11/30/2007. Morgan Stanley Emerging Market (MSD) has a little under 2% in Argentina as of March 31, 2008. Morgan Stanley Emerging Market (EDD) has closer to 5% in Argentina as of March 31, 2008.

As an FYI, I could not get the info for MSD and EDD until I got to the tenth page of stuff. I nominate Morgan Stanley for the worst web site of the week. I would suggest to anyone owning any fund that might have exposure - call and find out where the fund is right now. The info I was able to find on the Internet is obviously old.

I have written about quite a few of these funds for TSCM and I always note the extent to which they tend to swing for the fence in terms of yield with exposure to not only Argentina but also Turkey and Hungary. From where I sit I would want to know what is under the hood of a fund like this if I owned it, especially with the actively managed funds, in order to minimize the chance of getting blindsided.

Notice I'm saying minimize as opposed to avoid. Every so often you are going to get blindsided by something but the extent to which knowing some details about what you own and paying attention to the news might spare you a little.

Comments

[Leoncio]

Me parece que tirar comentarios sin aportar fundamentos es de chantas.
No porque ya hayamos pasado por un default lo vamos a hacer a cada rato.
Que le hacepensar que eso va a pasar ahora?
que datos estudió? o sólo se sienta a leer los comentarios de otros y los repite aca?

[drmalaka]

How nice, an Argentine commentor speaks in Spanish to us all. The answer to his question is probably that the reason the writer thinks that Argentina faces a risk of default is that they elected a moron as President that has absolutely no economic experience or understanding. She is a Peronist and believes that taxing things fixes the economy. Gartman wrote today about Argentina and their brown outs because of government energy taxes and policy and now the agriculture problem. The only thing Argentina does right is grow food and now the idiot in charge is raising taxes on their one important export.

The problem with Argentina is not the country, it is the Argentinians.

[eldenfrente]

Leoncio, in his typically Argentine outburst, may be right about the lack of hard facts that support Nusbaum's words. However, in typically Argentine way, he overlooks the importance of sentiment and perception in markets. The country's leadership (?) is doing a fine job of digging the country into a factual and perceptive hole. Anything can happen there... as it did when the currency "intangibilidad&q... law was passed and then promptly shredded. Argentina: "un pais en serio... con vocacion de contramano."

[Tom B]

"The problem with Argentina is not the country, it is the Argentinians."

Don't be so glib; many would say this about the US, considering the unelected dingbat we've had in the White House these 7 1/2 years.

[PabloAlliaud]

The issue that has not been solved at all is a political one.
Just to mention, remember what happened with the INDEC and the subsequent "default" of the debt that were linked to the "indice de Inflacion" or some other index. As the Presidente (?) had the politic power to modify the statistics, we have no reliable information about the economic situation ina Argentina.
There are no excuses, as a country, for the sport that we have been practicing for a lon time: "break every rule that disturb us"; but as we say around here: "La culpa no es del chancho sino del que le da de comer".
A detestable political, sindical and industry "leader (?)" in a very, very, very rich country.
From Buenos Aires, Argentina, my best regards.

[mangy cat]

the absence of argie "indexed" bonds from pcy and wip has already been noted in domestic blog
www.cansarnoso.blogspo...

p.s. the identity is in the adjective

[mongoose]

Tom B, I wish I had said that. It gives you a sick feeling in the pit of your stomach. May God bless America.

[mangy cat]

Dr Malaka (aka Dr. Pangloss who Rx's kool aid)
states that Argentina has no problems at all
(Argentina is a noun, and Argentine the adjective and nationality. there is no thing/person Argentinean -unless you learnt English * language where dubya was taught grammar and dan quayle won a spelling bee)

Thus, on pure logic:
If
The problem with Argentina ... is the Argentinians"
And
argentinians don't exist
Therefore
Argentina doesn't have a problem
QED

wish you were here, some field research would bring you back to ground with a dose of reality
of life under the lithium lady

* Or should that be "englishian"

[User 154263]

It is highly improbable that Argentina defaults in the short term with the massive reserves it currently has. I hate this goverment and the monetary policy it applies but the probabilities of a near term default are almost zero.

[whidbey]

Morons who use this posting to bash President Bush are part of the problem in the US and I wish them on Argentina. The USA which is not even faintly like Argentina and there is no comparison between our political system and Argentina's. There will be no default since the government will what is required to meet its current account debts even if it ruins the long run welfare of the country. That can not happen in the US.