As European credit markets reel from potential credit crises, investors have fled into U.S. dollar-denominated debt as a ‘safe haven’. Yet given the long-term concerns many investors have in regards to the U.S. dollar and U.S. debt growth, perhaps there are other non-traditional safe havens in other parts of the world, such as East Asian bonds.
For example, the Credit Default Spread chart below for major East Asian nations doesn’t show the panic that a similar chart for European sovereign debt would. (Thanks to the likes of Greece, Spain, and Portugal)
Many East Asian currencies also seem likely to continue appreciating vs. the U.S. dollar over time given that Asian governments have exerted substantial effort to keep them weak, and given each Asian nation’s higher long-term growth potential vs. America (width the exception of Japan and maybe South Korea).
The Economist’s tongue-in-cheek Big Mac Index at least says as much:
Fair enough, mainland China is probably a bad choice as a safe haven given how wild growth has been and the potential for a spectacular disaster. Still, countries like Taiwan, Indonesia, and Malaysia (Thailand would have made the list if it didn’t have its current political problems) might be out-of-the-box safe havens in today’s global economy where developing nations are saddled with debt concerns while East Asia charges ahead.
According to Deutsche Bank, Taiwan, Indonesia, and Malaysia are expected to have public debt to GDP ratios of 35.25, 29.2%, and 59.3% by the end of 2010. This compares to America’s expected 97% public debt to GDP ratio expected by 2011 from the IMF. Despite the fact that Asia has a major crisis as recently as 1997, maybe Asian bonds are already worth a look as a safer part of the market:
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