Emerging markets prices mixed; Venezuela leads high betas; investors watch new issues

By Aaron Hochman-Zimmerman

New York, Jan. 7 - Emerging markets were mixed in trading Monday as equities, cash, commodities and Treasuries seemed to trade independently of each other.

"Cash is up, Treasuries strengthened, there's equity weakness ... everything's all over the place," a syndicate official said.

Trading volumes still had a post-holiday feel, but "stocks are killing us," a portfolio manager said.

Venezuela stood out to lead the winners with a 1.05 addition to its sovereign bonds due 2027.

In the primary, the roadshow began for a new deal from Brazil's Usinas Siderurgicas de Minas Gerais SA (Uniminas).

The roadshow for the benchmark bonds from Indonesia is scheduled to begin on Tuesday.

Many investors are holding their chips while they see how well the new issues are received, a trader said.

Elsewhere, the Federal Reserve Bank now plans to make $60 billion available for auction this month, rather than the $40 billion which had originally been announced, according a press release from the Federal Reserve.

Jean-Claude Trichet, chief of the European Central Bank, praised the actions of the world's central to improve the worldwide economy, although there are still real risks, he said.

Oil prices were lower by approximately $2.50 as it traded around $95.30 per barrel Monday, despite a naval stand-off between the U.S. Navy and five small ships of the Iranian Revolutionary Guard in the strategic shipping lane, the Straits of Hormuz.

No shots were fired between the vessels, but the Pentagon accused the Iranians of inciting "a serious incident," according to a press release.

Along with waffling commodities and equities, volatility rode a rollercoaster on Monday but ended up lower by 0.15 to close at 23.79, according to the VIX index. The index is an accepted measure of market volatility.

As a sector, emerging markets widened only 1 basis point to a spread of 256 bps, according to JP Morgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors demand to keep money in emerging markets debt.

Emerging Europe flat on light holiday trading

With many in eastern European nations celebrating Christmas, markets were quiet and largely flat in emerging Europe.

In the Ukraine, oil producer Naftogaz recently received the guarantee of the government thanks to president Viktor Yuschenko's signature on the country's 2008 budget, according to a market source.

The government will back the oil producer's debt for up to $2.4 billion.

However "it's not clear if that's enforceable outside the local jurisdiction, so people are scratching their heads over what to do about that one," a portfolio manager said.

Naftogaz came under scrutiny after it did not meet a deadline to publish its financial statements for 2006 by December 2007.

Over the last two weeks the company's 8.125% bonds due 2009 have added approximately 1.5, but held flat Monday at 96.6 bid.

In Turkey, engineers from the China Coal Energy Co. struck a coal reserve of approximately 200 million tons in Turkey's Manisa province, reported the Turkish Daily News.

The Turkish government bonds due 2030 were quoted lower by 0.1 at 157.2 bid, 157.7 offered.

The increase in cash reserves at the central bank and private banks in Kazakhstan suggest there is stability returning to the sector, a market source said.

Although there was a setback for the national bank in December, the general outlook is beginning to improve, the source said.

The Development Bank of Kazakhstan's 7.125% bonds due 2013 were quoted at 99.9 bid. The 6.5% bonds due 2020 were quoted at 89 bid and the 6% bonds due 2026 were seen at 81 bid.

Also in emerging Europe, Romania's central bank is expected to raise interest rate by 50 bps to 8%, according to a market source.

Still, there is a large portion of the market which predicts the hike will be 25 bps, the source added.

Russia's market was closed for Orthodox Christmas.

Roadshow season opens

The roadshow for the possible $400 million 10-year bullet bond from Usiminas began Monday.

JP Morgan and UBS have the books for the deal.

Also in the primary, a team from Barclays, HSBC and Lehman Brothers will be on the road to market the benchmark-sized sovereigns from Indonesia beginning Tuesday.

Meanwhile, rumors of further deals crept through the offices and trading desks.

There has been talk surrounding a reopening of the Philippine bonds due 2032, a trader said, as well as a five-year benchmark deal from Korea Development Bank.

LatAm floats in choppy waters

In Latin American trading, cash prices were up, almost inexplicably, a syndicate official said.

On what he called a "pretty choppy day" bonds traded higher, although "it doesn't make any sense," he said.

In Venezuela, as part of his broad cabinet reshuffling, president Hugo Chavez replaced finance minister Rodrigo Cabezas with former vice minister of finance Rafael Isea.

A market source said he does not expect many macroeconomic changes to the administration's policies.

Off-budget spending is likely to remain high while price controls may be loosened to avoid food shortages, the source said.

The 9.25% Venezuelan sovereigns due 2027 jumped up 1.05 to trade at 102.5 bid.

In Argentina, the government's influence over corporate operations has stifled growth and left companies with few financial options, a market source said.

Control over consumer prices has also hampered corporate earnings, the source said, but after five years of strong growth, the government shows no signs of easing off price controls, tariffs or other market interventions.

Also, since president Cristina Kirchner's inauguration, labor unions have taken on greater importance, the source said.

Labor leaders threatened to "shut down" the economy if Kirchner did not concede to their demands, the source added.

The 8.28% discount bonds due 2033 added 0.45 to 94.7 bid.

Brazil's industrial production year-over-year grew by 6.7% ahead of the expected figure of 6.3%, a market source said.

The Brazilian 11% bonds due 2040 were quoted up 0.25 at approximately 134.65 bid, while the sovereigns due 2037 gained 0.2 to trade at 114.45 bid.

Asia softer on slow session

"It's a bit softer, nothing too dramatic," a trader said about the action in the Asian sector.

"People are just waiting for these deals to come and see how they go," he said about the few new deals which are on the primary market radar.

"That'll set the tone for the market," he said.

In the Philippines, the gross international reserves reached a record level of $33.7 billion by the end of December, according to the central bank's website.

The figure beat the target estimate of $33 billion to $33.5 billion.

The reserve is enough to cover almost six months of imports of goods and services and is also equivalent to almost five times the country's short-term external debt based on original maturity and three times based on residual maturity, the website said.

The Filipino bonds due 2030 added 0.25 to trade at 133.25 bid, 134.25 offered.

Indonesia's bonds due 2017 dropped 0.5 to approximately 102.25 bid, 102.75 offered.

In Pakistan, political risk still threatens to bring a possible further deterioration of the country's sovereign credit, a market source said.

If the five-year CDS crosses 500 bps, profit taking will likely follow, the source said.

Meanwhile, eight pro-government tribal leaders were killed by gunmen in the volatile region of South Waziristan.

The Pakistani bonds due 2017 were unchanged in light trading at 77 bid, 82 offered.

"This is the lowest we've seen even over the course of last year ... the prices didn't get beat down as low as this," the trader said.

"Even the guys who bore the weakness haven't returned," he added.

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