Emerging markets trades light, mixed; LatAm closed for carnival; local deals price

By Aaron Hochman-Zimmerman

New York, Feb. 4 - Prices in emerging markets were flat to mixed as many investors followed the lead of Latin America and walked away from the trading desks.

Without the Latin American markets, the other sectors stayed illiquid as well, a trader said.

In the little trading which could be found, Argentina's discount bonds due 2033 took the top honors as the winner of the day with a gain of just 0.5.

The primary pipeline produced local-currency deals from Malaysia's AMMB Holdings Bhd. and Cellcom Israel Ltd.

Volatility numbers were consistently higher throughout the session, ending up 1.97 at 25.99, according to the VIX index. The index is a frequently used measure of market volatility.

As Treasuries fell, emerging markets narrowed by 6 basis points to a spread of 270 bps, according to JP Morgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to keep assets in emerging markets debt.

Emerging Europe tracks equities lower

Emerging Europe saw some mildly heavier volumes on Monday, but the faster pace only provided a mixed to weaker market, a trader said.

Credits continue to track equities even as, "it was certainly not an easy month [January] and there has been pressure on the equity markets," said an economist specializing in emerging Europe.

"Currency-wise it's the same game as we have seen in the late part of 2007," he said, but called the bond market "reasonably robust."

Despite the surprise 100 bps rate hike in Romania and persistent trouble in Hungary, "the global slowdown here has not played much of a role" in many countries, he said.

Still, "there is harder evidence that growth is slowing in the eurozone," he said, "We're going to see a much softer, slower growth performance basically across the board."

Although, countries such as Poland and the Czech Republic with better balance sheets have a more favorable outlook, he said.

At least in comparison to equity and currency trading, "there is probably some more upside for the bond markets," he added.

Turkey's chances of a possible ratings upgrade have come under question after the ruling Justice and Development Party (AKP) recently announced its economic policies, according to the Turkish Daily News.

Questions over the effects of the major markets on the Turkish economy continue to be examined by the major ratings agencies, the report said.

The Turkish sovereign bonds due 2030 were seen essentially flat at 157 bid.

In Russia, the country's largest independent oil-producer Lukoil announced a yearly oil output of 96.6 million metric tons during 2007, which represents an increase of 1.5%, reported the RIA Novosti News Agency.

Meanwhile, the state-run energy firm OAO Gazprom, which has not yet released its 2007 production numbers, hopes to increase output to between 80 and 90 million metric tons by 2020. It produced 32.7 million metric tons in 2006.

The Russian government bonds due 2030 slipped about 0.15 to a bid of 115.2 bid.

In the Ukraine, rumors of a backroom conflict between prime minister Yulia Timoshenko and president Viktor Yushchenko were denied by the president, according to the Itar-Tass News Agency.

Friday, Yushchenko ordered the government to determine the source of "unauthorized taking of natural gas," the report said.

The country's budget includes a financial safety net for the national oil firm Naftogaz Ukrainy which has fallen into financial trouble.

The Ukrainian bonds due 2016 were lower by 0.5 to trade at approximately 100.25 bid.

Also in emerging Europe, as Serbia's pro-West president Boris Tadic was re-elected Monday, the European Union expressed its interest in speeding up its membership.

The E.U. voted unanimously to support a "police and justice" mission in Kosovo of 16,000 to relieve the United Nations forces currently in Kosovo once it declares its independence.

The date of the E.U. takeover will likely be set at the minister's meeting on Feb. 18.

Kosovo is expected to declare independence from Serbia "in the next few weeks," according to the BBC.

Asia opens week mixed on low flow

Asian trading was quiet as traders focused more on discussion on the New York Giants' comeback SuperBowl victory than the illiquid market, a trader said.

"EM in general was very quiet," he said, with many Latin American markets were closed for carnival.

The Asian Development Bank said growth in the Philippines will be hampered over the next five to eight years by its weak balance sheet, poor infrastructure and lack of investor confidence, according to the Manila Times.

However, "there was really no follow through in cash [trading]," a trader said.

The Philippines bonds due 2030 slipped 0.25 to trade at 132.5 bid, 133 offered.

In Indonesia, the central statistics agency said the trade deficit with China has exploded by 3500% in the non-energy sector.

In 2007, the deficit stood at $1.3 billion compared to $35 million in 2006, the Jakarta Post reported.

Non-energy imports from China totaled $52.5 billion in 2007.

The Indonesian bonds due 2018 gained just 0.125 to trade at approximately 103.375 bid, 103.875 offered.

Meanwhile, in China the World Bank said the economy will begin to feel the effects of spillover from the major markets, according to the BBC.

The bank now predicts growth of 9.6%, compared to its estimate of 10.8% in September, 2007.

Inflation will continue to hang on the economy as consumer prices will rise 4.6%, the report said.

Two local deals price in primary

The primary was active, but only in the local markets, as investors continued to wait for Banco Cruzeiro do Sul's dollar bonds talked at 7½%.

AMMB Holdings (A2, local) priced a 500 million ringgit 10-year note at par with a coupon of 5.23%.

The notes come from its 2 billion ringgit medium-term note program.

The notes carry five years of call protection. The coupon steps up 0.5% annually after five years.

Of the proceeds, 200 million ringgit will be used to refinance outstanding debt and 300 million ringgit will be used for general working capital.

AMMB is a Kuala Lumpur-based retail and commercial bank.

Cellcom Israel Ltd. has accepted offers for NIS 81 million of its series C debentures and NIS 494 million of its series D debentures.

A price of NIS 104.3 was set per series C debenture for a principle amount of NIS 100.

A price of NIS 104.4 was set per series D debenture for a principle amount of NIS 100.

The premiums represent a yield to maturity of 3.85% and 4.84%, respectively.

The offer was made to local investors only.

The Netanya-based telecom is the largest cellular provider in Israel.

Across LatAm, markets closed for carnival

Markets across Latin America were closed on Monday for the annual pre-Lent carnival.

"Right now, more than anything, lack of volume" is to blame for the sliding prices across the sector, a syndicate desk official said.

"Brazil makes up the lions' share of liquidity," he said.

"Latin America is dead ... so there isn't a whole lot to do."

Brazil's 11% government bonds due 2040 were lower by 0.25 to trade at 134.05 bid. The 7.125% bonds due 2037 were down 0.7 to trade at approximately 108.6 bid.

"Brazil was down across the board," he said.

Argentina's 8.28% discount bonds due 2033 managed to climb 0.5 to trade at 92.75 bid.

Venezuela's 9.25% sovereign bonds due 2027 fell 0.2 to trade at 101.8 bid.

© 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.