Emerging markets coast into weekend; primary silent but deals awaited; Venezuela slips

By Aaron Hochman-Zimmerman

New York, May 15 - Emerging markets drifted into the weekend without sustaining much damage on another day of post-rally consolidation.

Equities set a softly descending pitch which carried over to most corners of the emerging world.

Quiet trading allowed investors to focus on the upcoming week's primary calendar.

Most of the primary activity is expected from emerging Europe and Asia, but "there's still an active window of opportunity" in Latin America, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"I would not discard any of the larger names coming back for more money," he said, referring to Brazil, Colombia or possibly Panama.

In the secondary, Venezuela suffered the most significant of the day's losses as more nationalization and slipping oil prices undermined the credit.

The bonds due 2027 fell by 1¼ points.

Relatively modest losses in the equity market helped cause a spike in volatility of 1.75 to close the session at 33.12, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector, emerging markets tightened by 2 basis points to a spread 500 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm slips slightly

Latin America was on a "slight negative drift" on Friday, which was similar to its behavior during the better part of the week, said IDEAglobal's Alvarez.

"The correlation with the equity market is still pretty much intact," he said, adding that the market was saddled with a series of negative numbers this past week.

Poor export and production numbers from China and poor growth numbers in Europe will come back to haunt the United States and accordingly Latin America, he warned.

Still, investors took the opportunity to skim profits and ease "what I believe to be over-bloated spreads," he said.

"It's no enormous setback."

Going forward, Latin America will watch the health of the U.S. consumer, which "is becoming increasingly important," he said.

Meanwhile, in the light trading Argentina improved as its 8.28% Argentine discount bonds due 2033 added 1 point to 35¼ bid, 36½ offered.

Brazil also added a slim 1/8 point to its 7 1/8% government bonds due 2019 to trade at 100 1/8 bid, 101¼ offered.

Venezuela lost another 1¼ points from its 9¼ sovereigns due 2027.

"It hasn't been a good week for Venezuela," Alvarez said as president Hugo Chavez ordered another round of nationalizations in the oil and banking sectors.

On Friday, authorities also occupied a pasta processing plant belonging to Cargill Inc. claiming that the pasta made was below government standards.

The nation's bonds were seen at 62½ bid, 63¾ offered.

Emerging Europe eases down

Emerging Europe traded mixed as levels remained hitched to equities and investors were hesitant to make large moves ahead of the weekend.

In Russia, leaders met to sign agreements to further work on the South Stream pipeline designed to cut Ukraine out of the supply chain from Russia to the West, reports said.

Prime minister Vladimir Putin hosted Italy prime minister Silvio Burlesconi and delegates from Bulgaria, Greece and Serbia in the resort town of Sochi.

Russia's national gas firm OAO Gazprom said the pipeline, which is designed to carry 30 billion cubic meters per year, should be operational by 2016.

The project is expected to connect the Russian Black Sea port of Beregovaya with the Bulgarian port of Varna. The lines then split between forks which will travel through Romania and Hungary to the north and Greece to the south, before each ends in Italy.

Serbia has also proposed that a piece of the northern line travel through its territory.

Oil was seen trading as low as $56 per barrel.

In Turkey, the unemployment rate hit a new record of 16.1% at the end of March, up from 11.9% at the end of February, the state statistics agency reported.

The lira was seen trading at 1.567 to the dollar.

Also in the category, champion cyclist Lance Armstrong and all but one of his Astana teammates stripped the logos from their riding jerseys for the seventh stage of the Giro d'Italia, according to a New York Times report.

The Kazakhstan-based sponsors, owned by the state holding firm Samruk-Kazyna, have not paid the team for the greater part of the year, the report said.

"It's basically a way of saying, we don't want to forget about this; that this is still a problem," coach Johan Bruyneel said, who added that the sponsors' names will return when the team is paid.

The lone member of the squad who wore the logos, Andrey Zeits, is from Kazakhstan.

Asia holds in

Asia held steady on low volumes and a general hesitancy to introduce new risk during a correction.

In the Philippines, remittance inflows grew 3.1% year on year to a new record of $1.5 billion in March, according to data released by the central bank.

The March figures pushed the year's total up by 2.7% to $4.1 billion.

Mild economic recoveries in Canada, Australia and Japan have afforded Filipino workers new job opportunities, the central bank said.

The peso was seen trading at 47.735 to the dollar.

In Indonesia, president Susilo Bambang Yudhoyono chose Bank Indonesia governor Boediono as his running mate in the upcoming July elections, reports said.

The selection of the banker indicates Yudhoyono will favor pro-business reforms above the objections of Islamic and leftist factions.

After his selection, many called for the bank governor to leave his post at the central bank.

"It is better for Boediono to step down so his performance and professionalism are not jeopardized," said legislator Dradjad Wibowo, according to the Jakarta Post.

In Pakistan, fighting continued between Taliban militants and government forces as camps swelled with refugees from the Swat Valley.

The United Nations estimates that within the past year 1.3 million people have been forced from their homes as the country stands at "the crossroads of history," said prime minister Yousuf Raza Gilani, according to the BBC.

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