CDS Trends Expose Fundamental Risks

Against the backdrop of increased volatility across global financial and debt markets, a country's creditworthiness becomes a key indicator for increasingly risk averse investors. The chart opposite shows how the price of insurance against default (CDS) has soared in Argentina and Venezuela, as both economies struggle to gloss over the growing risks to economic stability caused largely by overheating. Both countries are experiencing strong inflation pressures, which are set to intensify further given their pro-cyclical fiscal policies. Meanwhile, CDS prices in the more stable Brazil and Mexico reacted only mildly to the recent slump in EM assets. These trends place

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