Emerging markets flat to mixed; small gains in LatAm; Canara Bank plans local issue

By Aaron Hochman-Zimmerman

New York, Jan. 3 - Emerging markets was still unable to shake off the holiday doldrums in Thursday's session, although investors agreed there is liquidity on the back shelf waiting to hit the market.

"It remains a market in which people are starting to look and see which direction it takes," an emerging markets strategist said.

"There is some cash in the market and people are looking for a place to buy some paper but there is no conviction," he said.

In trading, Venezuela was out in front of the closely watched issuers as it saw 1 point added to its 9.25% bonds due 2027.

"Latin America and emerging markets are back to reading the tea leaves," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, about a possible move by the Federal Reserve Bank.

Many are hoping for "convenient" lower rates while "nudging aside the ongoing argument in the U.S. about recession versus inflation," he said.

India's Canara Bank provided the action in the primary by announcing a Rs. 7 billion 9% local bond deal.

Elsewhere, unmotivated post-holiday investors who were searching for a catalyst looked to the U.S. Department of Labor for Friday's release of non-farm job growth numbers.

However, a private firm, ADP, pre-empted the department by one day as it released its own figure of 40,000 new jobs added in the United States during December, according to ADP's website.

The number was far fewer than the 118,000 averaged during September through November.

Still, market watchers are anticipating Friday morning's release, a trader said, but added that "Monday will be the true first day of the year."

Treasuries slipped on the news of the added jobs as equities clawed higher in the morning, but fell back down to level ground in the afternoon as it was announced that president George Bush will meet with Treasury secretary Henry Paulson and Fed chairman Ben Bernanke on Friday, a trader said.

Even as stocks were unchanged, volatility eased by 0.68 to 22.49, according to the VIX index. The index is a commonly accepted yardstick of market volatility.

Emerging markets held in against Treasuries, only widening by 1 basis point to a spread of 250 bps, according to JP Morgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors demand to hold money in emerging market debt.

LatAm holds still, Venezuela finds daylight

Latin America rolled flat through Thursday with the exception of Venezuela, which added some value "on oil prices at the fringes," said IDEAglobal's Alvarez.

The near $100 per barrel oil prices may have mildly helped the climb of the Venezuelan paper, but the other larger producers Mexico, Ecuador and Colombia have shown "no direct impact as of now," he said.

The creation of Venezuela's new currency, the strong bolivar, was "more a theatrical act than anything else," and came on the back of "a very high inflation reading," Alvarez said.

The inflation numbers for 2007 were "way above the official target," and the country will have to deal with "a very poor overall outlook on inflation," he said.

The strong bolivar was approximately unchanged trading at 2.14 to the dollar on Thursday.

The Venezuelan 9.25% sovereign bonds due 2027 were trading up 1 point at a bid of 101.5.

Also in the region, most of the tax revenue Brazil will lose from the loss of the CPMF tax will be made up by a series of smaller taxes, a market source said.

Brazil will also continue its fight against rising inflation in 2008, but because of its formidable $178 billion reserve, its currency will likely progress on a stable track, the source added.

"Higher taxes on banks ... new taxes on credit operations," Alvarez said.

The government also plans to curtail spending by about 20 billion reals.

For additional revenues, Brazil is also "banking on economic activity ramping up on the private side," Alvarez said, which leaves things "a little iffy there in Brazil."

The Brazilian bonds due 2037 were quoted flat at 114 bid, 114.5 offered. The 11% bonds due 2040 edged up by 0.1 to 134.3 bid, 134.35 offered.

Argentina may face more of an inflation problem than some had expected in the coming year, according to a market source.

President Cristina Kirchner's government will need to spend money more responsibly to rein in inflation as well as calm a public which is growing impatient with the instability of consumer goods prices, the source said.

Kirchner will likely continue the major economic policies of her husband's administration, but those policies may come under further scrutiny if electricity becomes scarce in the summer months, the source said.

Argentina's 8.28% discount bonds due 2033 have been unwilling to budge in the new year from 95.5 bid, 96.3 offered.

Emerging Europe finds no direction

Emerging Europe's light volumes left prices static as investors on under-staffed desks continued to wait for calmer seas before they leave the harbor for the first time in 2008.

In the Ukraine, prime minister Yulia Timoshenko announced she will call for a special investigation of the finances of the national gas company NAK Naftogaz Ukrayny during the first session of parliament on Jan. 9.

The company may face bankruptcy in the near future, a market source said, but Timoshenko has agreed to guarantee its debt in order to prevent any interruptions in energy production.

The Ukrainian bonds due 2016 were lightly traded at a bid of 99.

During the month of December, Turkey's exports were up 7.7% compared to the same period of 2006, according to the Turkish Daily News. The gains, estimated to be worth $9.4 billion, were the lowest in over a year.

Helped by the economic growth of the European Union, Turkey's chief export market, Turkish exports were up 23.5% or $105.9 billion during 2007.

In trading Thursday, Turkey's sovereign bonds due 2030 slipped by 0.375 to 157.375 bid, 157.625 offered.

Russia's government bonds due 2030 were seen lower by 0.2 at 114.3 bid.

In Africa, Kenya's attorney general called for an investigation and a re-count of the votes which the government claims re-elected president Mwai Kibaki.

Street battles between supporters of the president and supporters of opposition candidate Raila Odinga have killed approximately 300 people.

Still, "none of those have been seen as market movers," an emerging markets strategist said about Kenya or Nigeria where 13 have recently been killed in the oil city of Port Harcourt.

Asia stuck in thin volumes

Traders of Asian paper were generally willing to keep any sidelined liquidity in the bottle, while a few issues began inching lower with dropping equities late during Thursday's session.

Overall, empty desks and light volumes left prices generally unchanged across the region.

In the Philippines, the Bureau of Internal Revenue expects to meet its collection goal of PHP 65 billion for December, the Manila Times reported.

The agency is still likely to miss its yearly target of PHP 712 billion by PHP 53 billion.

The Philippine sovereigns due 2030 fell 0.875 to trade at 134.75 bid.

Indonesia's negotiations with ExxonMobil over the U.S.-based oil giant's rights to the Natuna D-Alpha gas block are nearing a finish, according to the Jakarta Post.

Under the current contract ExxonMobil receives all of the proceeds from the production split. The government is expected to take a percentage of that money in the future, but no figures were released.

The size of the government's share will be partially determined by offers from prospective buyers in Malaysia, Thailand and Vietnam.

The Indonesian bonds due 2017 were quoted lower by 0.25 at 103 bid.

Pakistan's sovereigns traded lightly as the fallout from the assassination of former prime minister Benazir Bhutto continues.

The bonds due 2017 gained approximately 2 points to end the day at 82 bid.

"It's so illiquid," a strategist said.

Although no news was discussed on Thursday, "I have seen some people looking to nibble and buy [Wednesday]," he said.

"We did see some buyers today," an Asia trader said on Thursday.

Canara Bank tests '08 primary

Canara Bank announced plans to sell Rs. 7 billion of 10-year tier II bonds.

The bonds will have a 9% coupon and carry a AAA rating from ICRA.

Canara Bank is a commercial and consumer bank based in Bangalore, India.

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