By Stuart Culverhouse
Published: April 3 2008 15:33 | Last updated: April 3 2008 15:33
Investors outside the US with an eye to geopolitical trends in the
Americas should look at Cuban debt, which could rise sharply in coming
months, says Stuart Culverhouse, chief economist at frontier market
Several factors are putting upward pressure on Cuban paper. First is the
US election. "Both Democratic presidential hopefuls have raised the
possibility of loosening US restrictions on visiting or trading with
Cuba," he says.
Secondly, Cuban-Americans – traditionally supporters of Washington's
isolation of Havana – are turning against US policy, under which travel
restrictions have been tightened.
Thirdly, Fidel Castro's handover of power to his brother Raul has led to
some economic liberalisation, such as allowing Cubans to buy computers
and mobile telephones.
Expectations of receiving unpaid accrued interest and of a flurry of
interest from US investors – currently banned from buying Cuban debt –
could also push up prices, if US restrictions are eased. A change in US
policy could bring investment flooding into Cuba, particularly in
tourism and energy.
In the past month the value of Cuban paper has crept up from 15-17 cents
on the dollar to 17-18 cents.
"By contrast, North Korean debt – surely the most toxic in the world –
is double that. The difference is that Americans can buy NK debt and
they can't invest in Cuban debt. If that changes after the election,
Cuban bonds could well double or even triple."