Icelandic banks have effectively been shut out of global credit markets, and a credit crisis is just around the corner. |
In a low-yield environment, there was a lot of interest in high-yield markets such as the Icelandic. But with yields on the rise in Europe and the U.S., we want to see a lot more quality before we feel comfortable investing, as high yields alone are no longer enough. |
Investors are beginning to see Poland in an unfavorable light and that's because of politics. Bad policy could turn good fundamentals into bad fundamentals. |
People want to have an experience when they take a shower. They want to enjoy themselves in a standing spa. But they don't have the time to lay in a whirlpool for a half-hour. |
That's a very strong argument for reducing holdings out of Poland and politics might be the trigger. |
The central bank is much more likely to tolerate a strong currency because of inflation. The market is speculating the koruna will gain. |
This will give the government some breathing space and bring short-term relief to the market. Although we still have to find out what deals were made to bring about this vote, the zloty will rally on this news. |
We conclude that Iceland on almost all measures looks worse than Thailand did before its crisis in 1997 and only moderately more healthy than Turkey before its 2001-crisis. |
We see a substantial risk of a financial crisis as an integral part of an Icelandic 2006-2007 recession. The funding squeeze of the banks will probably force them to reduce lending to domestic players, and force a sell off of external assets. |
We're still concerned, however, about the imbalances in the economy, but it's positive that the central bank is reacting. |