Best way to take a punt on Icelandic recovery?

February 17, 2009 12:34 PM

Iceland - How to invest? Are there restrictions of foreigners owning Icelandic govt bonds, Icelandic Kroner, property? Is there an Icelandic REIT open to foreigners? What is the best way to take a punt on an Icelandic recovery?
posted by priorpark17 to work & money (3 answers total)

You're all good. Knock yourself out, you can buy as much as you like. Find a broker who can handle it. E-Trade does everything under the sun, so check with them.

On preview: holy christ, look at the yield curve! Nevermind. This is a really, really, really bad idea. When yield curves are inverted, bad things are about to happen. The Icelandic government bond curve is... Mad-Maxian in nature.

If you want to speculate, without getting your ass completely handed to you by some arbitrary move by the Icelandic government ("we're going to do the same thing Russia did in 1998!") or the ECB ("yeah, sorry, we don't have the funds to bail you out"), and you don't want to go to Las Vegas to put all your money down on 00, then I might recommend some GM corporate bonds. If the company goes bankrupt you won't lose your ass like you would with the stock, and if they can turn the ship around you'll be sitting pretty, and you won't need to worry about currency fluctuations, since you're dealing only in dollars.
posted by mark242 at 2:12 PM on February 17, 2009

This older (back when it was hot) article discusses the ICEX-15 ETF, which tracks Icelands biggest companies. The ETF is managed by the failed Kaupthing bank and you would have to jump through hoops as a US investor to get into it.

The easiest way as a US investor to trade it is probably just an fx bet (Kronur - ISK). Probably want to option it (my bloomberg terminal shows them to be surprisingly liquid) for a homerun-or-lose-your-bet position.

I would second mark242's opinion though - given all the other crap going on there are plenty of bets similar to Iceland "making it" that don't require anything special. GM bonds is a bad idea, their recovery rate is waaaay overestimated.
posted by H. Roark at 2:39 PM on February 17, 2009

Ah! Great question!!

Ok priorpark17 , I have to assume you're US based as you don't have any location data in your profile. If you were in Europe that would, of course, change things and perhaps more than a little. But no worries.

Now the problem you're going to immediately have is Iceland is a relatively small country (in terms of GDP); because the costs of listing are low (very low!!) the Iceland Stock Exchange (ICEX) sports many companies that are small and are relatively illiquid when compared to US or UK enterprises (think Pink Sheets / US or AIM / UK). Bid / asks spreads will be wider than one might be used to.

Good news is the ICEX was taken over by the OMX Nordic Exchange back in 2006 so that will help with this exercise somewhat.

There seem to be two main components of the Nordic market as listed on NASDAQ ONX

• NASDAQ OMX Nordic, or the main market -- here we see lots of EU passported companies cross listed [ .pdf - sorry, late at night, only cite I can find], as well as some multinationals.
• NASDAQ OMX First North, a growth market -- listing and regulatory requirements much less rigorous, we many startups raise capital here

So I'd look at NASDAQ contacts and work backwards. After all, you now know the exchange so you've just got to find an appropriate vehicle (i.e., direct shares, investment trust, unit trust, etc).

Of course you could always grab some real estate in Iceland. Not sure about issues related to US Citizens holding land in this country - I'm American, long term UK resident, have owned property in several European countries and currently own in UK - but there aren't many, if any, across much of the European Union.

Still, seems like professional advise would be warranted should you decide to try to acquire property in Iceland.

Interesting question. I'm a very, very conservative investor myself, but happy to hold someting very speculative, so I understand the attraction. Just don't put any more cash into Iceland (or any other investment) than you can stand to lose. Takes all the fun out of it otherwise, don't you know. In any case, I hope this helps!
posted by Mutant at 3:14 PM on February 17, 2009