Emerging markets ride higher; high-betas jump; South Korea's securities tighten on bailout plan

By Aaron Hochman-Zimmerman

New York, Nov. 3 - Emerging market securities posted respectable gains over light flows as the market sentiment continued to lift the gloom off of investors.

Prices were broadly higher, but despite the gains, "I don't think the liquidity has improved," a strategist said.

"It was illiquid going down, it will be illiquid going up," he said.

In trading, South Korea's $11 billion aid package helped tighten spreads while high-betas Argentina and Venezuela both added 4 points to their respective benchmark bonds.

From the major markets equities ended flat, but volatility fell by 6.21 to 53.68, according to the VIX index. The index is a frequently used gauge of market volatility.

LatAm starts week strong

Latin American trading felt stronger to start the week on Monday.

Issues remained illiquid, but gains of nearly 5 points were common for many issues.

Venezuela's bonds were better despite falling oil prices.

Light sweet crude was seen trading as low as $64 per barrel, but the 9¼% Venezuelan bonds due 2027 improved by 4 points to 64 bid, 65 offered.

Fellow high-beta Ecuador saw its benchmark 8% bonds due 2030 trade at 31 bid, 32 offered, while investment-grade Brazil saw its 7 1/8% bonds due 2037 trade at 92.75 bid, 93.25 offered.

Argentina rebounds with market

Also in Argentina, the private pension funds "have been told to sell their assets outside of Argentina and bring the money back," a strategist said.

The 8.28% Argentine government bonds due 2033 were better by 3.5 points at 29 bid, 30 offered, but the gains cannot be broadly attributed to the pension funds, he said.

"In general terms the market conditions are much better," he said, although illiquidity is still rampant.

"The short covering is going to be painful as much as the downturn was," he said.

Quiet day, firm tone in Asia

"The tone feels better, for sure," a trader said about Asian credit, which traded better with light volumes on Monday.

Still, "I don't think we're out of the woods yet," he said, although "there's only so much bad news the market can take before it gets priced in."

In South Korea, the Ministry of Finance and Strategy announced that it will put nearly $11 billion into the economy to stave off a recession.

The aid package comes on top of the $30 billion currency swap agreement with the United States.

About 75% of the money will be put toward public works projects, with the remainder to be used for tax relief.

The government "will continue its efforts to mitigate adverse external shocks and secure liquidity in the market by increasing bilateral currency swaps and expanding FX reserves," the ministry said in a release, but still considers its new programs "preemptive, decisive and sufficient counter-measures."

The South Korean five-year CDS was seen at 275 bps bid, 320 bps offered.

"The tone in Korea continues to get better and better on a daily basis," the trader said.

"What they're trying to organize down there has been interpreted by the market well," he said as "a number of accounts are unwinding shorts."

Meanwhile, in the Philippines, the central bank announced that during the period from July to September inflation increased due to a spike in commodity prices, but a late-quarter drop in prices helped ease the increase.

Headline inflation jumped to 12.2% in the third quarter from 9.7% in the second quarter.

As a result of the world's downturn, "the yield curve of the secondary market for government securities flattened in [the third quarter of] 2008, reflecting partly a 'flight to quality' market sentiment," according to a press release.

"In addition, bond spreads widened as the financial market strains globally triggered a significant spike in risk aversion against emerging market assets," the release said.

The inflation numbers had little effect, the trader said, as the Philippine sovereign bonds due 2030 jumped 5 points to 108 bid.

The peso was seen trading at 48.383 to the dollar.

Elsewhere, Indonesia's government bonds due 2018 were quoted at 76 bid.

Upbeat environment for emerging Europe

Emerging Europe opened to a positive tone in the market even as the political turmoil persisted.

In Russia, president Dmitry Medvedev proposed a number of new solutions to the global financial crisis.

He suggested that lines of communication and transparency be improved among the world's various marketplaces.

"There is no doubt that the existent financial system must be reformed and the behavior of market participants must be rational, motivated and balanced. It will take years to shape a new world system, but we should start this work right now," he said, according to the Itar-Tass News Agency.

He also emphasized the importance of decoupling global finance with the U.S. economy.

"I must say once again that Russia has many times warned about the negative potential of the American financial system since the beginning of this year. This potential has developed into a full-scale financial crisis," he said in the report.

In Ukraine, president Viktor Yushchenko pled his case for early elections as the only way to break the gridlock imposed by the Yulia Timoshenko bloc, he said, according to the RIA Novosti News Agency.

Prime minister Timoshenko's party has "no desire to return to the coalition," he said, adding that "in this situation, snap elections are the only constitutional way out."

"I am convinced that if the prime minister had behaved honestly as part of the coalition, and not conducted secret negotiations ... this coalition would be working for a long time yet," Yushchenko said.

Still, 90% of Ukrainians are opposed to holding early polls on Dec. 14, the report said.

Yushchenko and Timoshenko's factions found a way to work together to pass bills aimed at stabilizing the economy in order secure the $16.5 billion loan from the International Monetary Fund.

However, the factions are not ready to reform a coalition.

In Turkey, prime minister Recep Tayyip Erdogan made an overture to the opposition by discussing the nomination of Reha Camuroglu to head a new cabinet office.

Many believe the move is intended to win votes from the opposition side in the upcoming March elections, the Hurriyet Daily News reported.

Camuroglu is the only Alevi Muslim deputy in the cabinet and a favorite of the opposition CH Party.

Erdogan is considering dividing the Culture and Tourism Ministry into a separate Culture Ministry and Tourism Ministry.

Liberal voting Camuroglu may be asked to run the new Culture Ministry, while current Culture and Tourism minister Ertugrul Gunay will assume responsibility for the Tourism Ministry.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.