Emerging markets continue fall; Asian issues hold in; Telemar pulls out

By Aaron Hochman-Zimmerman

New York, Sept. 10 - Emerging markets felt the sting of a volatile market again on Wednesday.

Trailblazing equities managed to end higher, but Latin America and emerging Europe could not follow the slight upward track as well as their Asian counterparts.

It is the overall market conditions that are "dragging down EM," a trader said.

"You come in everyday and the equities are down a few percent ... it's just sinking quietly," he said.

"For holders it's too low to sell and everyone's too scarred to act," he said.

"That's basically everyone's outlook."

The negativity on Wednesday was not helped by the primary which had its eyes on one corporate and one sovereign to potentially price.

A trader of Asian credit said the 10-year sovereigns from South Korea are "coming sooner" rather than later. Still, specifics were in short supply.

Brazil's Telemar Norte Leste SA was the corporate deal expected to price, but "the issuer actually made a very mature decision" and pulled the up to $2 billion deal, a syndicate official said.

Elsewhere, the equity markets showed a mild recovery as volatility initially rose but then fell back by 0.95 to end at 24.52, according to the VIX index. The index is a standard yardstick of market volatility.

LatAm falls as Telemar deal misses

Latin American trading, when not consumed by news surrounding Lehman Brothers, was watching for the pricing of the benchmark deal from Brazil's Telemar.

"There's not too much interest out there in the market," a syndicate official said about the new paper before it was pulled.

The deal was intended to be printed on Wednesday at an amount between $1.5 billion and $2 billion, he said. The five-year notes due 2013 were talked in the 7¾% area and the 10-year notes due 2018 were talked in the 8½% area.

However, by New York's afternoon Telemar made the decision "to stand down for the time being," another syndicate official said.

"We thought we'd get a market bounce from the weekend," he said, referring to the bailout of Fannie Mae and Freddie Mac, but "the market is still extremely nervous."

Some had heard that the deal was whittled down to $1 billion, but the issuer had remained flexible throughout the process, a syndicate official said.

Finally, despite what a syndicate official called a "more than fair" price, Telemar said "let's do the right thing," as the decision to pull the deal was made, according to the syndicate official.

"Lehman and the equity market didn't help ... It was going to be a trendsetter," a market source said about Telemar.

The trend it set was just not a very good one, the source said.

On the rest of the Latin American issuance calendar "there's nothing in the short-term," the source said.

Going beyond that, "maybe a commodity play" is in the works, but "people will likely hold off," he said.

In sovereign trading, Brazil's highly traded 11% bonds due 2040 were quoted at 131.4 bid.

LatAm 'intrigue'

Meanwhile in Miami, the trial opened against one of the men accused of smuggling a large illegal campaign donation into Argentina.

The money supposedly intended for president Cristina Kirchner was hidden in a suitcase and was allegedly from Venezuela's president Hugo Chavez.

Still, "that's just intrigue," a strategist said.

The 8.28% Argentine discount bonds due 2033 lost 1.25 points to 69 bid.

The 9¼% Venezuelan government bonds due 2027 slipped 0.5 point to 89 bid.

Also in Latin America, Ecuador's bonds, which suffered a difficult day on Tuesday after incendiary comment by president Rafael Correa, fell again by on Wednesday.

The 8% Ecuadorian government bonds due 2030 gave up 0.5 point to 83 bid.

Emerging Europe slides again

Investors watched again as emerging Europe slipped wider on very little market activity, a trader said.

The widening could only be attributed to externals as "the invasion [of Georgia], the war story is kind of taking a backseat at the moment," he said.

"It's so dominated by Lehman and equities and the momentum behind the negativity," he said.

"It's nothing to do with EM."

Still Russia was on watch for an upgrade from BBB+ from Standard & Poor's, according to the ratings agency.

The Russian government bonds due 2030 lost 0.375 point to 110.25 bid, 110.5 offered.

Meanwhile in corporates, the talk of a new issue from Russia's VTB Bank hung in the air where "it's been in the ether forever," the trader said.

"I haven't seen anything extra fresh today" to support the idea that the issue at hand, he said.

In Ukraine, another deal which seems to have dropped from the calendar was from poultry and egg producer ZAT Avangard, which proposed to print up to $150 million three-year eurobonds.

Many following the deal in its initial stages were surprised to see price guidance soar to 20% from 13%.

In the coming days, some expect Russian corporates to make a return to the primary led by deals from JSC Russia Railways and the Bank of Moscow.

Turkey growth halted

Also in emerging Europe, Turkey reported a second quarter GDP of 1.9% down from 6.6% in the first quarter.

The Turkish sovereign bonds due 2030 were unchanged at 151.5 bid, 151.75 offered.

Asia follows equities up

The Asian market traded to the positive side on moderate volumes, a trader said.

"Generally the market is following stocks, following Lehman," he said.

Indonesia dropped two places to 129 of 181 countries which are attractive to foreign and domestic businesses, according to a survey by the World Bank's investment arm, International Finance Corp.

The drop was the result of a high minimum starting capital requirement, said IFC official Fararitri Widyadari, according to the Jakarta Post.

The government's starting capital requirement was raised to 12.5 million rupiah from 5 million rupiah, the report said.

In emerging Asia, China led the survey in reforms by making credit more widely available and contracts more enforceable.

In Pakistan, the government bonds due 2017 were quoted at 61.5 bid, 63.5 offered.

The Indonesian sovereigns due 2017 took on 1 point to 102.75 bid, 103.25 offered.

In corporates, South Korea's high yield name MagnaChip Semiconductor was lower again.

The company's 8% notes due 2014 were seen falling once more, losing 3 points to 20 bid.

Its 6 5/8% notes and the floating-rate notes, both due 2011, were seen unchanged at 46 bid.

Philippines shows strength

Also across Asia, "CDS was relatively well bid," and "there was some strength in Philly and Indo cash," he said.

The strength in the Philippines could be attributed to reports that the government's plans to sell more sovereign bonds are "being shelved," the trader said, "which is not news."

"They're looking to be more opportunistic" rather than force an issue in a poor market, he said.

Also in the Philippines, the central bank announced a net inflow of $132 million of foreign equity capital in June 2008, governor Amando Tetangco said in a press release.

The figure, called "significantly higher than the level recorded in the same month a year ago," came as a result of large investments in a "large-scale tourism project," the release said.

Including the June inflows, total inflows for the first half of 2008 reached $813 million.

The largest amounts of inflows came from the United States, Japan, Singapore, South Korea, Germany, and Malaysia, the release said.

The Philippine sovereign bonds due 2030 improved by 0.625 point to 130.125 bid, 130.5 offered.

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