Topping Out at the Bottom

Feb 1, 2002

For the real emerging market gamblers, Argentina offered up a wild ride last year. Many investors came out ahead, but the outlook for the emerging market asset class is uncertain.

As international holders of Argentine debt braced themselves at the end of last year for what promised to be one of the biggest haircuts in history, a few players remained in the game betting that they could squeeze a little more money out of the markets. They are exceptional only in their extreme appetite for risk. For many other traders, getting Argentina right was one of the easiest and most lucrative trades of 2001.

The inevitability of the country's financial collapse seemed clear as early as last February. Yet Buenos Aires, the G-7 governments and International Monetary Fund struggled all year to prop up Argentina's finances until they finally gave up in December. This did the country little good, but it did hand traders generous profits.

Martin Schubert, a veteran of emerging markets distressed trading and now chairman of European InterAmerican Finance Corporation, says, "Anybody who went short in...

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