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Ukraine to Hungary Debt Holders Most at Risk, Goldman Sachs Says

Investors in the debt of Hungary, Argentina and Ukraine will lose most in the event of a default among emerging-market nations, Goldman Sachs Group Inc. said.

The U.S. bank’s model evaluates the size of external debt relative to a country’s economy and gives scores to the strength of 24 nations. Holders of Taiwan, South Korea and Israel government notes are least at risk, London-based analyst Themistoklis Fiotakis wrote in today’s report.

Ukraine suffered rating cuts this year as Russia annexed Crimea in March and separatist unrest escalated while Argentina was downgraded after it devalued the peso in January by the most since 2002. Emerging-market dollar debt has gained 6.9 percent this year after a 6.6 percent drop in 2013 that was the first annual decrease since 2008, JPMorgan Chase & Co. indexes show.

While sovereign defaults have been rare in the past decade, losses on hard-currency bonds are more punitive, Goldman Sachs said. Its research on 180 restructuring cases over the past 30 years showed an average loss of between 20 percent and 40 percent, with losses rising in more recent times.

Holders of Greek debt suffered losses of as much as 60 percent in 2012 while those invested in Belize saw a 35 percent drop in value, Goldman Sachs said in the report. Jamaican government notes lost about 33 percent in both 2010 and 2013.

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