Emerging markets lift levels; pre-holiday volumes run thinner; Venezuela hit with negative outlook

By Aaron Hochman-Zimmerman

New York, Dec. 10 - Emerging markets continued to trade relatively well through thin end-of-year volumes on Wednesday.

A seasonal lethargy continued to build among investors who were beginning to focus on the coming year as the market rolled one day closer to Christmas.

"People are wrapping it up," a syndicate official said about the mood around the desk.

Still, some optimism was apparent, even in small amounts, as the Philippines and Indonesia traded higher in Asia, while in Latin America Venezuela was hurt by an outlook downgrade from Standard & Poor's.

In the major markets, volatility dipped sharply at midday but later climbed back to end lower by just 3.18 at 55.73, according to the VIX index. The index is a frequently used yardstick for market volatility.

Venezuela smashed

Latin America was largely stronger on "very weak" pre-holiday volumes, a syndicate official said.

The winners in the sector left Venezuela behind as it posted heavy losses on the day, even with oil trading as high as $46 per barrel.

Issues sank as Standard & Poor's cut Venezuela's outlook to negative as the budget becomes overwhelmed with low oil revenues.

Many believe that OPEC intends to cut oil production in order to drive up prices, still "I don't think they're going to cut production," the syndicate official said.

"Their concerns about a global recession are outweighing prices," he said.

The 9¼% Venezuelan government bonds due 2027 sank by 5 points to 58.5 bid, 60.5 offered.

Meanwhile in Argentina, news came back from Moscow of new economic agreements with Russia.

Russia's privately owned OAO Lukoil now holds contracts to ship oil to Argentina through two local energy firms.

Oil will be received by Argentina's Energia Argentina SA and will be stored by Pobater SA, reports said.

"Our company has already been conducting active work in two Latin American countries - in Colombia and Venezuela," said Lukoil first vice president Vladimir Nekrasov.

"We hope that the memorandum of understanding we signed today with the Argentine companies will help step up mutually advantageous cooperation between Russia and Latin America," he added.

The 8.28% Argentine discount bonds due 2033 added 0.3 point to 29 bid, 30 offered.

Also, Brazil 11% bonds due 2040 improved by 0.65 point to 112.4 bid.

Mexico buys back 4.3 billion pesos

Mexico recovered 4.3 billion pesos of its peso bonds due 2013 and 2024 in a local auction but "only got 25% of the results they wanted," the syndicate official said.

"Remember, the first time around it actually failed," he said.

The Mexican 5 5/8% bonds due 2017 were up 1 point at 95 bid, 96 offered.

Asia 'cautiously optimistic,' higher

In the Asian market, important numbers were released for major players China and the Philippines, but "to be frank, no one cared," a trader said.

"Everyone is kind of wrapping up their year," he said.

Investors are trading market tone and equity trends, he said.

Still, "at the margin, those are important numbers," he said, adding that in time, they will get the respect they deserve.

Levels were slightly better as the tone was "mixed," but "cautiously optimistic," the trader said.

Investors were surprised as China registered its first drop in exports in seven years for the month of November.

The government blamed the loss on a lower global demand for consumer goods, reports said.

November showed a 2.2% slide in exports compared to a 19.2% increase during November 2007.

Despite the disappointing numbers, the country's trade surplus topped $40 billion. Elsewhere in Indonesia, legislators cautioned Bank Indonesia that lax oversight may lead to another banking collapse similar to Bank Century, which was nationalized.

"Bank Indonesia should enhance bank transparency so confidence in banks will increase," said Endin Soefihara of the House commission XI, which reviews financial matters, the Jakarta Post reported.

Before the Nov. 20 takeover of Century, the bank held a capital adequacy ratio of less than 0%. Century currently carries a CAR of 8%.

The Indonesian government bonds due 2018 added 2 points to 75 bid.

Also in Asia, Pakistan's bonds due 2017 were spotted at 39 bid.

Big Philippines inflows

In the Philippines, foreign direct investment inflows touched $331 million in September, a figure ten-fold higher than September 2007, according to a statement from the central bank.

Bank governor Amando Tetangco attributed the success to "notable improvements in other capital and reinvested earnings," the statement said.

The number pushed the yearly foreign investment total to $1.4 billion, which is still significantly lower than the $2.5 billion seen by the same point in 2007.

"The lower net FDI inflows during the period January-September 2008 ensued as lingering global financial uncertainties led foreign investors to stay on the sidelines and wait for more stable financial market conditions," the statement said.

The Philippines sovereign bonds due 2030 improved by 2.5 points to 107.5 bid.

Emerging Europe pushes higher

Emerging Europe showed signs of improvement even over slow holiday volumes.

In Russia, aside from meetings with Argentine president Cristina Kirchner, meetings were also held in Moscow between a Russian delegation and representatives of Iran.

The Russian and Iranian delegations mainly discussed increased economic cooperation, according to the Itar-Tass News Agency.

"The sides shared views on a broad range of issues of Russian-Iranian relations," the Foreign Ministry said, according to the report.

The talks were understood to focus on "trade and economic cooperation, key regional and international problems and joint efforts to solve them."

The Russian sovereign bonds due 2030 added 1.75 to 81.75 bid.

Also in emerging Europe, Turkey's trade minister, Kursad Tuzmen, expressed optimism that the country's export totals would surpass $125 billion in 2008.

Looking forward, "we are planning to reach a rate of $112 billion in exports and a rate of $175 billion in imports in 2009," Tuzmen said, according to the Turkish Daily News.

Tuzmen, also echoed a line often repeated by prime minister Recep Tayyip Erdogan that Turkey will escape the brunt of the financial crisis.

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