Global Investing

Ireland descends from risky debt heights

Good news for Europe as the cost for insuring sovereign debt against default fell in the third quarter of 2012, according to the CMA Global Sovereign Credit Risk report.

Ireland slipped out of the 10 most risky sovereigns for the first time since the first quarter of 2010 according to CMA, making space for Lebanon to enter the club of the world’s ten most risky sovereign debt issuers.

Although Irish 5-year credit default swap spreads tightened to 317 basis points from 554 basis points in the third quarter, there is still a 25 percent chance that Ireland will not be able to honour its debt or restructure it over the next five years.

If this sounds bad, it’s an improvement from last quarter’s 39 percent and stands up pretty well against Greece, which tops the table with a 90 to 99 percent chance of default or further restructuring.

It’s lonely high up for Greece on the Olympus of risky sovereigns – the list’s number 2, Cyprus, can only boast of a comparatively modest 57 percent chance of default or debt restructuring.

Dubai banks feeling the heat

More than two years on from Dubai World, and Dubai is still struggling to sort out its debt.

Investors were shocked when government-owned Dubai World declared a payment standstill on its debts in Nov 2009 — a brutal tarnishing of the  ”sovereign halo”, which investors thought shone even on those borrowers whose debt did not have a solid sovereign guarantee.

A number of debt restructurings have taken place since then, including most recently for $2.5 billion in debt from Dubai International Capital (DIC). But banks are looking vulnerable.

Zeitgeist check

Some more bits and bobs to capture the current mood among investors.

–  So far, 2009 is worse than 2008 for stock investors. MSCI‘s main world index is down around 17 percent in January and February.  A year ago, it had lost around 8 percent.

– Eastern and central Europe are the new worries because of bank exposure to troubled economies.  ”The travails in the east, like the vampires of folklore, are sucking the lifeblood from European markets and investor sentiment,” State Street suggests.

– Cross-border flows into the euro zone hit record lows in February,  the same firm says.

Greenland – new and poor country?

Greenland, an arctic island with a population of 57,000, voted for self-governance from Denmark in a referendum on Tuesday. The “Yes” camp won an overwhelming 75 percent of the vote.

Shrimp and halibut fishing and tourism form the backbone of the economy but the island is rich in minerals and its waters may hold vast hydrocarbon reserves.

The resources setting is very much like one of Iceland, although Greenland – made up mostly of Inuit people who live in small, isolated villages – does not have a huge banking sector. (Neither does Iceland these days, some might argue.)