The Simple Accountant

Emerging Markets: Betting Against Conventional Wisdom

What an odd thesis. Going short EM debt is no different in principle from going short any other debt. The analyst must make the case that either (1) a high rate of defaults is expected, or (2) an interest rate spike will decrease the value of the future cash flows, or (3) both 1 & 2 will occur. Debt markets do not trade like equity markets, and contrarian sentiment indicators do not work the same way.