Emerging markets step lower; Lithuania talks euro offering; spreads wider on equity weakness

By Aaron Hochman-Zimmerman

New York, June 15 - Emerging markets were subject to a general weakness in the investment world on Monday, but light trading kept the losses stunted.

Credit was lower on light trading as equities sank on poor data and renewed skepticism surrounding the prospects for a broader recovery.

Lithuania talked its upcoming euro-denominated bond offering as trading was flat to slightly lower.

Still, recent improvements show that "Asia allocations among emerging markets bond funds climbed to fresh four-year highs in April as this fund group lifted their average Indonesia weighting, which has climbed 120 basis points since the beginning of the year, to a new high," according to data compiled by EPFR Global.

Also, "Emerging Europe allocations also climbed on the back of a significant rise in Poland's allocation. But exposure to Latin America slid as the average Brazil weighting dropped below 14% for the first time in over four years and allocations for Argentina - despite solid net buying by EPFR Global-tracked funds - hit a 49-month low," EPFR Global said.

Meanwhile, from the major markets volatility launched back up over 30.00 as it climbed 2.66 to close the rocky session at 30.81, according to the VIX index. The index is an often used yardstick of market volatility.

As a sector, emerging markets widened by 13 bps to a spread of 427 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

Lithuania talks, Emerging Europe wider

Lithuania issued talk in the 9½% area for its euro-denominated benchmark-sized five-year bonds (A3/BBB/BBB).

The books remained open at Monday's market close. The deal is expected to price early in the week.

Citigroup, Credit Suisse and RBS Securities have been mandated to lead the issue.

Also in Russia, president Dmitry Medvedev expressed his displeasure with Belarus president Alexander Lukashenko after the Belarusian leader skipped a meeting of leaders of the former Soviet republics in Moscow on Sunday.

Lukashenko refused to attend after Russia said it will close its doors to Belarusian powdered milk producers.

The ban shuts off nearly $1 billion in business between the two countries, the RIA Novosti News Agency estimated.

It "effectively forces Belarusians to their knees," Lukashenko said in a statement.

Relations between the two have been recently contentious as Minsk would not recognize Georgia's breakaway republics Abkhazia and South Ossetia.

Moscow recently withheld a $500 million tranche of a total $2 billion loan to Belarus, but reports differ over whether the Georgian republics or the currency of the loan was at issue.

Minsk reportedly preferred to take the loan in dollars, while Moscow preferred to make the loan in rubles.

The ruble was seen trading at 31.303 to the dollar.

In Turkey, the unemployment rate dropped from its high of 16.1% down to 15.8% in the February to April period according to the Turkish Statistic Institute.

Still, jobless numbers are expected to rise again, but at a slower pace in April to June, said labor minister Omer Dincer.

Asia slow, wider

Asia quietly traded "slightly wider" on sinking equities, a trader said.

Little news came across to help direct the market, but there is a sense that a spate of new deals may come through before the summer doldrums set in.

In the Philippines, the government is believed to be considering raising new debt in the form of a samurai bond, reports said.

The county recently upped its budget deficit estimate to PHP 250 billion in 2009 and expects to fill some of the PHP 50 billion gap with new borrowing.

The government is expecting backstops from the Japan Bank for International Cooperation as well as the Manila-based Asian Development Bank.

Still, "I don't know why they'd borrow in yen," the trader said; "I can't think of why they'd want yen."

The Philippine sovereigns due 2030 were mostly unchanged at 123 bid. 124 offered.

Korea Gas Corp. has also lingered on the calendar with a $500 million deal, but is not a likely candidate, he said.

Meanwhile, the new Korea Hydro & Nuclear Power Co. Ltd. bonds were seen 8 bps wider at 378 bps bid, 370 bps offered.

The South Korea bonds due 2014 were quoted at 240 bps bid, 230 bps offered.

Elsewhere in Indonesia, finance minister Sri Mulyani Indrawati said that her government has carefully managed the country's debt.

"Without debts, our economy would be stagnant. The budget deficit is often widened to raise state budget allocations so as key development projects can continue," she said at a press conference Sunday, according to the Jakarta Post.

Total debt may grow to 1.7 quadrillion rupiah by the end of 2009, up from 940 trillion in 1999, but these expenditures are necessary to grow the economy, Indrawati said.

LatAm on holiday pace

Latin America traded slower and lower as a holiday closed the local market in Argentina.

On the primary side, Brazil's Banco Cruzeiro do Sul is still expected to bring its two-year deal via BCP Securities sometime during the week.

In Venezuela, Hugo Chavez was defensive after he was challenged to appear for a frank political discussion with the television station Globovision.

Investors and political forces within the country have recently taken notice of a wave of recent nationalizations or threats of nationalizations by the government, and now Chavez has threatened to close the television station.

Globovision also was recently forced to pay a $2.3 million fine for failing to pay taxes. The station denied withholding any taxes.

© 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.