Published: October 28 2010 09:54 | Last updated: October 28 2010 15:40
Financial markets can be efficient at valuing, say, corporate results. In larger matters, they often miss the point. Take investors’ positive response to the sudden death of Néstor Kirchner. Argentina’s former president influenced the incumbent, his wife Cristina, in her policies, which are definitely inflationary and probably bad for the country’s long-term prospects.
The weakening of the Kirchner hold may well be good for markets, but Wednesday’s 13 per cent increase in Argentine share prices was senseless. After all, Argentina’s entrenched tradition of self-destructive economic populism long pre-dates Mr Kirchner, who was almost unknown when he came to power in 2003. Its economic record under his presidency was okay, and under his wife the country even made good its relations with international creditors. If bad policy is what Argentina wants, another Kirchner (quite possibly less skilled) will be found to lead the people in the wrong direction.
Kirchner death sparks market rally - Oct-28
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Combative style paved way for dynasty - Oct-27
beyondbrics: Néstor Kirchner’s death - Oct-27
Short View: Argentine bonds - Oct-27
Video: Emerging markets bubble - Sep-01
For an even better example of the markets’ unsubtle judgment of Latin American politics, look at neighbouring Brazil, where shares could be had for two-thirds of book value during the sell-off ahead of Lula’s election as president in 2002. Now, at the end of his presidency, they go for twice book.
Evidently markets, like people, attribute too much to individual mortals. They also fail to put a value on natural assets such as the cost of lost biodiversity and flood-prevention. On Thursday The World Bank announced a new programme to introduce “ecosystem valuation into national accounts”. This would make it easier to charge companies for the environmental costs of their projects. But there is no realistic way to calculate the present value of a possible disaster avoided a decade or a century from now. The numbers would largely reflect the prejudices of those who calculate them – just like markets’ judgments on Latin American politics.
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