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  3. When investors get twitchy, developing countries are usually the first to pay the price. The current sell-off may be even more d

When investors get twitchy, developing countries are usually the first to pay the price. The current sell-off may be even more d

admin2009-06-24  61
问题     When investors get twitchy, developing countries are usually the first to pay the price. The current sell-off may be even more dangerous because it follows a recent bout of exuberance. It is possible that some emerging markets could be among the worst casualties of the latest wave of risk aversion. In particular, it is time to worry about some of the beneficiaries of the "carry trade".
    The trade assumes that markets are irrational. Investors who succumb to its lure borrow in low-yielding currencies and invest in higher-yielding assets. In theory, the long-term expected return from a currency carry trade should be zero, since the assets should only be offering a higher yield because of their higher risk. In practice, however, investors have been making money from the carry trade for years. This may well be due to the "Great Moderation" in the world economy. In many countries both growth and inflation have been more stable than expected. Economies with a poor inflation record have thus tended to overcompensate investors for the risk they have taken.
    But the carry trade has also allowed some countries to get away with economic policies that they might never have dreamed of in the 1980s. Latvia and Iceland have been running current- account deficits of 25-30% of GDP without suffering a currency crisis. Turkey has been another beneficiary. Its current-account deficit has not hit the Icelandic extreme hut, at around 7.5% of GDP, it is still a gaping hole. However, short-term interest rates of 18.7% have encouraged investors to take the risk of buying the currency; the lira has risen 18% against the dollar in the past year.
    A strong currency has encouraged Turkish companies to borrow abroad. Were the lira to collapse, the cost of repaying dollar-denominated debts would be, a big burden for Turkish companies. Currency strength is also the "wrong" response to Turkey’s current-account deficit because it will make the country’s exports less competitive. As a result, some economists reckon the deficit may head towards 10% of GDP during the second half of this year.
    Until recently, markets have been reluctant to punish Turkey for its dodgy economic fundamentals, perhaps hoping it will be a long-term winner if it manages to pull off greater integration with Europe’s economies. Neil Shearing, an emerging-Europe economist, reckons that Turkish bonds ought to trade at a premium of nearly three percentage points to Treasury bonds, rather than their current two-point spread.
    However, investors may at last be opening their eyes to the risks in Turkey. Turkey may have been helped by the perception that, because many emerging markets have improved their economic positions, all of them are less risky. Emerging-market bond spreads reached a record low of around one-and-a-half percentage points in June. When investors were only getting 6% for lending money to investment backwaters such as Peru, a 6.7% yield from Turkey must have looked like a bargain.
    But it is in the nature of emerging markets that, every so often, they kick investors in the teeth. This looks like being one of those moments. Of course, within 12 months, investors are bound to be back, their smiles expensively restored, Fast economic growth and high yields are just too alluring.
选项 A、Because the investors tend to averse high risks in developing countries.
B、Because the exuberant economy has overdrawn its strength.
C、Because the so-called carry trade may be harmful to newly emerging market.
D、Because newly emerging markets are more irrational.
答案C
解析
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