Ukraine, South Africa, Turkey, Qatar, Abu Dhabi perform even as market caution reigns

By Christine Van Dusen

Atlanta, Aug. 17 - Emerging markets investors remained defensive and issuers gun-shy on Wednesday as the continuing global economic crisis and the summertime slowdown took their toll on volumes and primary market activity.

At the same time, spreads tightened and several names remained resilient, including Ukraine, South Africa, Russia's corporates, Turkey, Qatar and Abu Dhabi.

"Emerging markets, like other markets, seems to have found a level it's happy with," a London-based trader said.

Said another trader: "Overall it's a pretty solid market. It's closing a little soggy following an impressive day. Selling on upticks and lightening on higher-beta names is still probably the name of the game."

After the JPMorgan Emerging Markets Bond Index Plus spread started the day wider by 3 basis points at Treasuries plus 332 bps - with Argentina wider by 12 bps and Venezuela by 9 bps - the spread closed 8 bps tighter. Argentina tightened by 11 bps, Colombia by 11 bps, Mexico by 15 bps and Russia by 11 bps. Venezuela continued to lag, widening by 1 bp.

"Of course we know the volatility will continue, so it's hard to see this rally continuing," a trader said. "It's a solid buy-a-thon for the most part today. It's not going totally crazy; however, on the flip side we never really sold off massively on at the back end of last week."

Most cash bond prices were stable, another trader said.

"Broker screens are full of prices," he said. "But most are too wide to generate any activity."

Investors maintained their fairly cautious stance, according to a report from RBC Capital Markets.

"Anecdotally, EM investors still appear to be very much in defensive mode, weary of developed market tail risks as well as the evolution of global growth, though in many cases they have already de-risked significantly over recent weeks and months and are now carrying much lighter EM long positions," according to a report from RBC Capital Markets. "However, despite the recent cheapening in valuations, interest to scale into new longs remains fairly limited."

IPIC sees demand

In trading, International Petroleum Investment Co.'s 2015 notes remained in demand, a trader said.

"I lost my bonds at 102.375 late yesterday, and it's just going up to 102.50 now," he said, noting that's 25 bps tighter on the week. "It's the same story with [Abu Dhabi National Energy Co.], with the long end still well supported. It's in vogue. It's a broken record there, really."

And Dubai opened about 5 bps to 10 bps wider. "Bids are a little defensive," he said. "It opened a little heavy, but gradually, as the day went on, they too were in demand."

Islamic Development Bank "saw some rare action," he said, with some Street buying and the 2016s trading at z-spread plus 95 bps. "The bonds are now 15 to 20 [bps] better on the week.

"There's still plenty of pain out there on the higher-beta and illiquid names such as Kipco and [Dar Al-Arkan International Sukuk Co. II]," he said. "Darark has been crushed on some market rumors and selling pressure. It's 200 bps wider on the week."

Buyers for Sharjah

Better buyers were also seen for Sharjah Islamic Bank's 2016s, which started the day at 103.75 bid, 104.25 offered.

Abu Dhabi-based First Gulf Bank's 2016s opened 5 bps wider at 101.03 bid, 101.28 offered and later traded at 101.12 bid, 101.37 offered.

Lebanon's 2022s were trading at 99.875 bid, 110.125 offered after pricing on July 28 at 99.195. And names from Qatar were solid, especially Qtel International.

"Very good demand was sighted on Qtel ... all the blue-chip names, in fact," a trader said.

Sukuks, Egypt well bid

Saudi Arabia names were hard to find on Wednesday, a trader said.

"Sukuks are well bid," he said.

Meanwhile, Egypt was well bid, with the 2020s at 102.25 bid and the 2040s at 96 bid, 97 offered.

"The bonds are 20 bps tighter over the week now," a trader said.

Looking to Turkey, the open was a bit volatile, sending spreads about 10 bps to 12 bps wider, a trader said.

Later in the morning, better buyers were seen. "And prices are roughly unchanged from yesterday's close," he said. "Corporates are again quiet."

Turkish banks get attention

By the afternoon in Europe, Turkey's banks were in focus.

"Banks are playing catch-up with Isbank and Akbank seeing the most interest," he said. "We are a buyer of Akbank's 2018s, GarantiBank's 2021 and a seller of Akbank's 2015s and Yasar Insaat's 2015s."

Said another trader: "Even Turkish banks have a bid today, at 15 bps tighter, for the first time in a week."

By the European close, all the bids on the sovereign bonds were getting hit and credit default swap spreads were being lifted on the Street, he said.

"However, we are still ending the day more than a point higher in nearly all Turkish papers," he said.

Russian corporates outperform

In Russia, corporates were "on fire," with Gazprom faring particularly well and Vimpelcom's 2022s 80 bps off the wides at 96½ to 97.

"Gazprom is screaming again," he said. "The whole curve has been lifted today."

Ukraine also outperformed on Wednesday, with recent laggard Ferrexpo getting a lift.

"Russian corporates are all showing much better resilience now that the local bid has returned," a trader said. "And yes, the Ukraine sovereign is still strong as a rock."

And from Kazakhstan, the KazMunaiGas Exploration Production curve played some catch-up while BTA Bank drifted higher.

BTA's 2018s received attention as the market reacted to the news that the company had appointed Marat Zairov as its new chief executive.

"In general, the level of activity and interest in this sector is significantly less than that in Russia and Ukraine," he said.

© 2015 Prospect News.
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