There may be a new investment opportunity in the international bond markets. If you have a high risk tolerance in pursuit of stellar profits you might want to buy defaulted international bonds. Your first thought may be that it will not take a lot of fundamental analysis to determine that defaulted bonds in a foreign country may be a really bad investment choice. Normally this would be the case but an item in the business news indicates that in the future it may not be such a risky proposition to buy defaulted international bonds. At issue in the current situation are bonds from the country of Argentina.
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Argentina Defaults on $100 Billion in Debt
Argentina defaulted on about $100 Billion in debt, denominated in US dollars, in 2001. Many if not most of the bond holders were offered bonds with a substantially lower value and they agreed to the deal. They retained some value and have been receiving payments ever since. Those who refused the offer had bonds that were worth cents on the dollar if that. Now a number of large hedge funds are suing in US courts to have Argentina pay in full on their defaulted bonds. The hedge funds won in a lower court and now have had the decision upheld by a three judge panel of the US Court of Appeals. It remains to be seen how these hedge funds would collect even if they win. But, it also remains to be seen how any foreign country could offer their bonds to US investors in the future if US courts determine that when US investors buy defaulted bonds that they can be eventually paid in full. Defaulted bonds were not one of our three great foreign investment ideas . But with enough risk tolerance and the potential for huge profits one might buy defaulted international bonds if the price is right and the profit potential high enough.
Investing Offshore
Successful international investment strategies include investing in foreign stocks , foreign real estate investments , setting up the management aspect of a business in a tax friendly locale, setting up shop for one’s entire business offshore, buying bonds and more. With any of these international investment strategies one ought to consider access to markets, manpower needs and costs, access to appropriate technology, and growth potential. And, in the case of bonds one needs to consider the ability as well as the willingness of the government in question to pay its bills.
Slower Emerging Nation Economic Growth
Coming out of the 2008 Great Recession, Asia was the engine of growth while Europe wallowed in recession and the USA slowly improved. Growth seemed to be the province of the BRICS nations, Brazil, Russia, India, China and South Africa. We noted some time back that when value investing for long term profits, going where the growth is, is the beginning of a good strategy. Now, however, India, South Africa and Brazil are all seeing substantial slowing. China is flirting with a real estate bubble. Intrinsic value of overseas investments is the same as in the USA. The value of an investment hinges on its forward looking income steam. As slower growth hits the BRICS nations there could be more opportunity to buy defaulted international bonds. If this interests you make sure that the price is right and that someone with deep pockets is footing the bill to take the issue to court.