22 February 2012 (Wednesday), 6:30pm to 8:00pm
Registration : 6:15pm
Podium Floor, Executive Club, Central Plaza,
18 Harbour Road, Wanchai, Hong Kong

DON'T LET A CRISIS GO TO WASTE

We have been asked a lot recently how to be positioned for the Eurozone debt crisis, including how one may benefit from it, as an investor.

One of the questions has been whether or not one should buy Credit Default Swaps (CDS – a risk insurance against a countries default) on countries like Italy and France, betting on their rising default risk. What we would like to point out in this regard is two-fold:

Firstly, when buying such CDS, it should be noted that they would only be triggered if the country in question actually defaulted. For this reason one needs to ask how likely it would be for Italy and France to default, given their considerable influence over the ECB which may simply expand money-printing (contrary to official assurances of respecting the ECB’s original mandate) to a level where their debt would be bailed-out or inflated away? So (just like in the case of the United States which really is in as dire a financial position as the aforementioned countries), an outright default may happen, but it also may not!

And perhaps more importantly, from whom would investors usually buy such CDS? In France, BNP Paribas has sold 1.5bn euros of them on France’s debt, in Italy UniCredit insures more than 500 million of its governments bonds, and interestingly, in Austria, Oesterreichische Volksbanken AG has guaranteed 839 million euros of its national debt (although the latter bank has even yet to pay interest on 1 billion euros of state aid it received in 2009).

The problem here is that, if Italy really declared bankruptcy, then chances are that UniCredit would vanish even before, or at latest default together with the government – in which case the CDS it issued would be worthless too, defeating the whole point of the exercise. And who would want a Euro denominated CDS anyway, if the Eurozone (and presumably thereby also its currency) was in collapse?

So, we suggest to look elsewhere for opportunities instead, and will discuss those in more detail accordingly.

Please join us at our February Seminar presented in English by Julian Galvin (Executive Director) and Martin Hennecke (Associate Director), for a review of these topics and the outlook going forwards. As always, we aim to make our Seminars as interactive as possible, with questions from the audience most welcome.


As seats are limited, so please register early to avoid disappointment. Please register in any of the following ways: phone (852) 2525 3639; fax (852) 2525 3679; or e-mail forum@tyche-group.com