July 09, 2015
Greece, Puerto Rico May Lead to Greater Scrutiny of Emerging Markets
By now, most financial analysts agree that the global ripple effect of debt problems in Greece and Puerto Rico will likely be minimal. The situation in Greece has long been on investors’ radar screens, providing banks, fund managers, and others ample time to eliminate or greatly diminish any potential exposures. While Puerto Rico’s “unpayable” $72 billion in public debt may impact some mutual funds, no one is predicting catastrophic losses.
As such, the most significant outcome of the current Greek and Puerto Rican crises may be its indirect impact on those exposed to potential trouble in other highly-leveraged emerging markets. Falling oil prices are already devaluing currencies in Russia, Brazil, and Mexico. A precipitous drop in GDP has some analysts even questioning China’s once undeniable rise as a global economic power. As a result, the dominant question among investors is not what will happen next with regard to Greece and Puerto Rico; but which market is next.
Given the rising levels of uncertainty, the time is now for banks, fund managers, and others with potential exposures to debt crises in developing nations to prepare for intensified scrutiny from clients and investors. What are the clear-cut opportunities in these markets? What hedges and contingency plans are in place should real trouble emerge? What are the early warning signs that will trigger a shift in strategy?
No matter how the Greek and Puerto Rican debt crises play out, the risks at play in other emerging markets are likely to become a primary focus of investors moving forward. Financial communications strategies need to adjust accordingly.