Emerging markets open week lower; slow post-holiday flows; market looks forward to Slovenia issue

By Aaron Hochman-Zimmerman

New York, Dec. 1 - Emerging markets fell lower on thin volumes as investors in the United States returned from the Thanksgiving holiday to find out that the nation is in a recession, officially.

Equities were pounded by disappointing news, data and the fear that the holiday shopping season will quickly run short of steam.

The shred of good news that emerging marketers found on their return was the Thursday announcement of a planned €1 billion first-quarter 2009 issue from Slovenia.

"The European market is coming back alive much faster than the U.S. market," a syndicate official said, although he added a measured amount of doubt for the deal's success.

Other market watchers shared his suspicions.

In trading, Pakistan reacted well by adding 1.5 points to its bonds due 2017 as the International Monetary Fund began transferring funds to Islamabad as part of its $7.6 billion aid package.

Equities tanked as volatility made a steady climb capped off by a late-day spike to end higher by 13.23 at 68.51, according to the VIX index. The index is a frequently used gauge of market volatility.

Also, investors made a dash for Treasuries as emerging markets widened by 33 basis points to a spread of 751 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors are willing to accept in order to hold assets in emerging market debt.

Something to be thankful for?

While investors in the United States were busy with family and turkey dinners on Thursday, Slovenia (Aa2/AA/AA) broached the subject of a live primary market.

The €1 billion eurobond is not expected until the completion of a European roadshow in the first quarter of 2009, so it is "hard to guess where it will come," a syndicate official said.

The former Yugoslav republic mandated JPMorgan, Societe Generale and UniCredit Banka to bring the deal.

Investors expect a maturity between three and five years.

"They could want to," another syndicate official said about the possible issue, but like many in the market, the official planned to retain a degree of skepticism until the issue is printed.

The Slovenian five-year CDS was spotted at 130 bps bid, 155 bps offered.

Equities slide, emerging Europe suffers

Emerging Europe had a difficult Monday as equities provided no positive leadership and Treasuries ripped spreads wider.

Also, over the holiday in the United States, Russia's central bank hiked its key interest rate to 13% from 12%.

Still, the struggling ruble continued to fall and was seen trading at 27.999 to the dollar.

Russia continues to suffer under low oil prices.

Light sweet crude was seen trading below $50 per barrel.

The Russian sovereign bonds due 2030 were able to add 0.25 point to 82 bid, 83 offered.

Meanwhile politically, German chancellor Angela Merkel repeated her objections to offering NATO membership to Ukraine and Georgia, insisting the two have not met the necessary criteria.

The two former Soviet republics were rejected at the April NATO summit in Bucharest and may face the same resistance during the alliance's meeting in Brussels on Tuesday and Wednesday.

In Turkey, the worst behind us?

In Turkey on Sunday, prime minister Recep Tayyip Erdogan said that the effect of the global crisis on the country has already passed its apex and will begin to recede.

"We predict that the crisis has reached its peak and is now in decline... No doubt, the impact of the global financial crisis would be felt for a long time and it would take a long time to find remedy to the crisis," Erdogan said, according to the Hurriyet Daily News.

In order to shore up the economy, a new round of economic measures is being finalized by the government's financial team, Erdogan said.

Still, Erdogan and his government met much criticism for miscalculating the effects of the downturn on Turkey.

The Turkish government bonds due 2030 were seen lower by 3.35 points at 128 bid, 135 offered.

Asia takes losses 'in stride'

Asian flows were thin coming back from the Thanksgiving holiday in the United States, but investors largely took the day's bad news "in stride," a trader said.

After last week's success people expected profit taking, he said, but if buyers do not return within a few days the market will see a significant change in tone.

The market continued to prove resilient in the face of the horrific headlines from India, which gripped the world.

"India flows are kind of quiet," the trader said.

Even in Pakistan, where the terrorists allegedly planned and organized the attacks, the country "is decently supported now that the IMF has transferred some of the funds over there," he said.

The Pakistani bonds due 2017 were quoted up by 1.5 points at 39.5 bid.

Meanwhile in the Philippines, economic growth is expected to slow in the fourth quarter despite a traditional pick up in retail sales during the holiday season.

According to the Manila Times, Philippine Equity Partners Inc. expects GDP to grow only by 3.6% in the fourth quarter rather than the 4.6% growth seen in third quarter.

That number would send the total 2008 GDP to 4.1%, compared to the anticipated 4.7%, the report said.

The Philippine sovereign bonds due 2030 were off by 2 points at 103 bid.

In Indonesia, the government lowered consumer fuel prices to 5,500 rupiah per liter but does not expect to see a large spike in consumption, the Jakarta Post reported.

Industrial fuel prices were lowered to 6,500 rupiah per liter.

The Indonesian government bonds due 2018 were seen unchanged at 68 bid.

LatAm starts week slower, lower

Latin America posted a slow day of trading while in the major economies "the market's tanking across the board," a syndicate official said.

In Argentina, president Cristina Kirchner lobbied for a package of tax breaks and other economic incentives to help ease the pain of the global slowdown, according to the Buenos Aires Herald.

The plan faces critics on both sides of the aisle but received the support of the frequently pro-opposition leader, labor organizer Hugo Moyano. Moyano favors the initiatives, which ensure all workers are legally registered as employees.

"The government is obliged to ensure that all workers are formally put on the books, and this will not be achieved through adverts on television but rather with inspectors on the street," he said.

However, "there is a serious worry in certain sectors," he said, "because this might lead to dismissals and suspensions, as is already happening."

The 8.28% Argentine discount bonds due 2033 sank 2.25 points to 28 bid.

Elsewhere in Venezuela, president Hugo Chavez once again proposed an amendment that would theoretically allow him to remain president for another 10 to 12 years.

Despite a minor loss for his party in recent elections Chavez told a crowd of supporters that he would like to serve until 2019 or 2020.

Similar changes to the constitution have already been killed in referendum votes.

The 9¼% Venezuelan government bonds due 2027 dropped 1.5 points to 64.75 bid.

Also in Brazil, the 11% bonds due 2040 fell 0.2 point and were quoted at 116.1 bid.

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