Emerging markets sinks into weekend; no resolution in Argentina; primary sentiment remains strong

By Aaron Hochman-Zimmerman

New York, May 23 - Emerging markets ended the week on a sour note in trading as equities were hammered and Treasuries jumped.

Overall emerging markets have been resilient compared to their equity counterparts, especially in the primary.

Even "Tuesday and Wednesday were pretty rough in equityland," a syndicate official said, but "it feels like our market is kind of chugging along."

"People have their buying boots back on," he said.

Trading volumes were light ahead of the three-day weekend, as "trading floors are probably only 30% manned," the syndicate official estimated.

Still, there was enough activity in trading for Argentina to drop another 1 point from its benchmark discount bonds due 2033 as the nation's farmers and government continued talks with no major breakthroughs.

Treasuries climbed on Friday, which forced emerging markets spreads wider by 11 basis points to 262 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging markets debt.

LatAm stumbles into weekend

Latin American spreads stretched out on a slow session with many trading desks running with skeleton crews.

The high beta credits were hit the hardest, a syndicate official said.

"[Argentina's] CDS is probably 15 [bps] wider today, Venezuela is 6 [bps] wider," he said.

Unlike politically volatile Argentina, Venezuela was sustained by dropping, but still near-high oil prices.

Light sweet crude was seen trading above $133 per barrel.

The 9¼% Venezuelan bonds due 2027 were lower by 0.4 point at 91.25 bid.

Meanwhile, Brazil's 7 1/8% sovereigns due 2037 were off by 0.45 point at 113.3 bid, 114 offered.

Farmers 'empty-handed, angry,' reports say

In Argentina, farm leaders left negotiations with government officials on Thursday "empty-handed and angry," the Buenos Aires Herald reported.

Still, cabinet chief Alberto Fernandez, who represented the government in the talks, called them "fruitful" and said they would resume early in the week of May 26, the report said.

"The meeting was a failure, the government doesn't want to resolve the issue quickly, and we are very angry," said Agricultural Federation leader Eduardo Buzzi.

The Economy Ministry promised to conduct an investigation into "the real impact" of the increased tariffs which sparked the strikes, economy minister Carlos Fernandez said.

"Looks like Argentina is heading towards bad times again. I have to be honest, I wasn't that optimistic to start with," said a commodities analyst with expertise in emerging markets.

The 8.28% Argentine discount bonds due 2033 lost 1 point to 91.25 bid.

Primary leaves work early

The major currencies primary market was closed and locked on Friday, but it was left with a strong sentiment for the coming week.

"I think we've had pretty good issuance," a buy side source said, "it seems well absorbed by the market."

"People are taking a little bit of a breather," a syndicate desk official said.

"There has been massive high grade [U.S. corporate] issuance. April and May were record months in terms of volume," he said.

"I think there's been a tiny bit of indigestion, but people are buying anything that's been thrown at them," he added.

In local currency, Malaysia's Muhibbah Engineering Bhd. planned 130 million ringgit sukuk with detachable warrants was approved by the Malaysian Securities Commission.

The deal is expected to come with 38 million warrants.

Muhibbah is a Selangor, Malaysia-based construction firm.

Emerging Europe slips

Spreads widened in emerging Europe on slight pre-holiday volumes.

In Russia, the central bank revoked the licenses of Krasbank and Kreditsoyuzkombank, both Moscow-based banks, the Itar-Tass News Agency reported.

The two allegedly did not meet deadlines for the submission of documents proving their compliance with regulations dealing with money laundering and the funding of terrorism.

Also, president Dmitry Medvedev left Kazakhstan for China on his first presidential trip outside Russia.

Medvedev met with Chinese president Hu Jintao as the two signed a cooperation agreement.

Hu expressed his gratitude to Medvedev for making China the first country outside of the Commonwealth of Independent States he visited as president.

The Russian government bonds due 2030 slipped 0.15 point to 114.9 bid, 115.5 offered.

Also, Ukraine's bonds due 2016 were spotted at 97.4 bid, 98.4 offered.

In Turkey, the Turkish Industrialists' and Businessmen's Association warned that the country will face power shortages in the summer due to the lack of free market governance over the energy sector, according to the Turkish Daily News.

The Energy Ministry will require a $90 billion investment in the sector by 2020, the association said, but privatization is not complete which leaves the system vulnerable even in the near-term.

Lawmakers are also struggling to provide the infrastructure and funding to create a nuclear energy program.

The Turkish sovereigns due 2030 were lower by 0.25 point at 151.85 bid, 152.35 offered.

UNM victory confirmed in Georgia

Also in the CIS, Georgia's central election commission reported a 59.5% victory for president Mikhail Saakashvili's United National Movement in Wednesday's parliamentary elections.

The chief opposition bloc made up of United Opposition, National Council, New Rights won 17.7% of the vote.

"These elections were not perfect," said Joao Soares, head of the Organization for Security and Cooperation in Europe delegation, but "concrete and substantial progress" had been made since the January presidential elections.

Meanwhile, the Georgian Foreign Ministry wrote to the Secretariat of the CIS "demanding of the CIS Executive Committee immediate withdrawal from the Abkhazian conflict zone of the units of the Russian armed forces, illegally deployed there recently," Itar-Tass reported.

Asia softer pre-holiday

Asian prices were pushed lower going into the long weekend.

In the Philippines, the government's suspension of import taxes on oil will not likely affect consumer prices, finance secretary Margarito Teves told the Manila Times.

The government would have received "windfall revenues" from taxes, yet cutting taxes will hardly benefit the public, he said.

Senator Manuel Roxas called on the government to take stronger action than the "tokenism" it has recently displayed.

Roxas asked for the 12% tax on petroleum products to be suspended.

The Philippine government bonds due 2030 dropped just 0.125 point to 130.125 bid.

In Indonesia, oil companies were awarded the exploration rights to the Kasuri block in Papua.

Malaysia's Genting Oil & Gas won the rights along with divisions of Italy's ENI, China's Cnooc, Sweden's Lundin Oil and Gas and the United States' Murphy Overseas Ventures.

The exploration commitment totals $201.5 million for the next three years, the Jakarta Post reported.

The government oil firm PT Pertamina has the rights to 15% of each block and the government has already collected a $24.4 million signing bonus.

The Indonesian sovereigns due 2017 were flat at 101 bid.

Pakistan rates jump

Also in Asia, Pakistan's central bank raised interest rates to 12.5% from 10% in order to combat inflation.

The sovereign bonds due 2017 fell 2 points to 81 bid, 86 offered.

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