Emerging-Market debt crisis, epic USD short squeeze, big losers.
By Christine Hughes, Canada. Chief Investment Strategist, OtterWood Capital:
The Brazilian economy has been hit hard by the drop in oil and China’s slowdown. But the next shoe to drop is one I’ve been warning about for a while. Brazil has $160 billion in US dollar denominated bonds. If bank loans are included, the total is $300 billion in US denominated debt.
China’s weakness has caused the Brazilian Real to fall against the US dollar, making this debt more expensive to service with a Real-denominated income stream.
This has led to stress in credit markets where the credit default swaps on Brazilian debt have jumped to 330 basis points (the price of to insure against default). Brazil is my primary concern right now, and I will be following it closely.
For a refresher of the dangers of borrowing in a currency you don’t operate in, click here. Here’s my video on the $9 trillion in US dollar dominated debt borrowed by foreigners, and how this will spiral into an epic short squeeze on the US dollar, where winners will be few, and will be dwarfed by losers:
By Christine Hughes, OtterWood Capital
Even HSBC, which knows a thing or two about the world, is bailing out of Brazil. Read… The Seventh-Largest Economy in the World Spirals Down