Is it better or worse when investors start gaming out doomsday scenarios? Citigroup’s Asia strategist, Markus Rosgen, says that amid the recent market selloff clients have started asking him for Altman Z-scores.
These gauge the probability of a borrower defaulting on its debt, based a mélange of sales, capital and assets. Mr. Rosgen hasn’t crunched Z-scores requests since the dark days of 2008.
The best scores—meaning the companies least likely to default—are in the U.S. Surprisingly, also near the top are companies in emerging markets. Two of the so-called fragile five, Indonesia and South Africa, look among the strongest, while Russia and Korea look cheap on a valuation basis compared to their safe scores.
But you can’t brush too broadly. Firms most prone to default according to this measure are in Latin America.
Still, the numbers temper the broad fear that has swept over emerging markets. Indeed, Mr. Rosgen says that clients typically request these Z-scores not at the beginning but at the end of a sell-off. Preparations for doomsday may signal that the sun will still come up tomorrow.
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