{"id":2057,"date":"2010-01-25T15:04:26","date_gmt":"2010-01-25T09:34:26","guid":{"rendered":"http:\/\/www.niftylivecharts.com\/blog\/?p=2057"},"modified":"2010-01-25T15:04:26","modified_gmt":"2010-01-25T09:34:26","slug":"the-sub-prime-effect-and-emerging-markets","status":"publish","type":"post","link":"https:\/\/www.niftylivecharts.com\/blog\/the-sub-prime-effect-and-emerging-markets\/","title":{"rendered":"The Sub-Prime Effect and Emerging Markets"},"content":{"rendered":"<p><strong>What is Sub-prime?<\/strong><br \/>\nSome borrowers may have issues like poor credit history or hard to  prove income, which makes<br \/>\nThem ineligible to borrow money at prevailing market rates or  prime rates. Sub Prime Lending is the<br \/>\nPractice of financing such borrowers at a higher than prime rate.  Such loans are considered risky<br \/>\nBecause of high interest rates, bad credit history and lack of  resources to pay off the loans. Sub prime<br \/>\nMortgage lending refers to such loans extended in the housing  market.<br \/>\nSub-prime mortgage issues began to crop up when the housing prices  in the US  began to soften<br \/>\nAnd the borrowers started to default on loan repayments. Loan  defaults led to rising rate of sub prime<br \/>\nMortgage foreclosures, which further led to a few sub prime  mortgage lenders to file<br \/>\nBankruptcy. As a result, participants in the market with exposure  to sub-prime mortgage backed<br \/>\nSecurities began to witness mark-to-market losses. They also faced  liquidity crunch, as no buyers<br \/>\nWere willing to buy such paper.<\/p>\n<p><strong>The Contagion Effect<\/strong><br \/>\nMarket participants who had exposure to sub-prime mortgage  securities as well as risky assets,<br \/>\ncovered up for sub prime mortgage losses by reprising the risky  assets. Due to this, other leveraged<br \/>\nequity market participants found it difficult to service their  cost of leverage. This led them to deleverage<br \/>\ntheir exposure in the form of further re-pricing of risky assets  in US. Due to integration of<br \/>\nglobal financial markets, risky assets in other emerging markets  also got re-priced as a spill over<br \/>\neffect. Several central bankers pumped funds into the economy to  ease the liquidity tightening<br \/>\ncaused by sub-prime mortgage issue.<\/p>\n<p><strong>Impact on emerging markets<\/strong><br \/>\nThe impact of the sub-prime effect on emerging markets is hard to  gauge. There are two parts to it.<br \/>\nOne is the impact on the real economies and another is the impact  on the stock markets. Due to<br \/>\nMacro policies, structural policies and domestic consumption, the  fundamentals of emerging<br \/>\nEconomies including India continue to remain strong.  This might act as a cushion against any major<br \/>\nFinancial setback in the US. However it\u2019s early to gauge  whether the sub-prime issue has the<br \/>\nPotential to disrupt the US imports and to that extent  affect economic growth of emerging markets.<br \/>\nAs far as the stock markets are concerned, they may take some hit  because of de-leveraging done<br \/>\nBy market participants. Time and again these kinds of events  affect market sentiment leading to<br \/>\nBouts of corrections. We believe that such corrective dips present an opportunity for investors to Invest in emerging markets at relatively attractive valuations.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is Sub-prime? Some borrowers may have issues like poor credit history or hard to prove income, which makes Them ineligible to borrow money at prevailing market rates or prime rates. Sub Prime Lending is the Practice of financing such borrowers at a higher than prime rate. Such loans are considered risky Because of high [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[5691,5690,5692],"class_list":["post-2057","post","type-post","status-publish","format-standard","category-general","tag-emerging-markets","tag-sub-prime-effect","tag-sub-prime-effect-on-emerging-markets","entry"],"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2057","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=2057"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2057\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=2057"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=2057"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=2057"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}