Emerging markets wider again; credit market lags equities; Asia outperforms; market tone abysmal

By Aaron Hochman-Zimmerman

New York, Sept. 24 - Emerging markets debt trading could not keep up with slight strength in equities Wednesday as stocks ended generally flat.

The weakness in credit has been prohibitive of investor confidence creeping back into the market.

Equities may be able to post short-term successes in the face of the severe volatility, but credit has been badly damaged as the $700 billion bailout hangs just out of reach of the market.

"Equities were firmer today even as credit was wider," a trader noted.

"There is still a lot of risk aversion out there," he said.

In trading, "net, net Asia has continued to outperform," he said, although "that may change."

Last week it was Latin America that led the way back from the big sell-off, he said.

Primary issuers are "watching how these high-grade deals are going," a syndicate official said, although the major currency emerging market primary is still closed, sealed and locked.

In the broader market, volatility sank early with equity strength but then bounced back slightly to end lower by 0.53 at 35.19, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets widened by 5 basis points to a spread of 362 bps, according to the JPMorgan EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt.

Asia slides in 'horrendous' market

Asian trading was interrupted again as investors waited and watched the "crazy soap opera" on Capitol Hill, a trader said.

"It's the most volatile market I've ever seen," he said. It "feels horrendous."

Asia was still a slight outperformer, but its margin ahead of the other sectors continued to narrow.

In the Philippines, tax collections from government-owned and controlled corporations hit PHP 321 million in August.

Total collections dropped 42% to PHP 4.4 billion through August 2008, according to the Manila Times.

"We need to work harder in raising the necessary revenues to fund the urgent requirements of our people during these challenging times," finance secretary Margarito Teves said in the report.

Teves added that the government is working to keep the government's deficit below the limit of PHP 75 billion.

The peso was seen trading at 67.852 to the dollar.

The Philippine government bonds due 2030 fell 0.75 point to 125.5 bid.

In Indonesia, the government announced plans to establish a holding company to manage airport operations in the country, the Jakarta Post reported.

The company would support management efficiency and allow for more secure lending.

"We expect the new holding to be set up by the end of this year," said Said Didu, the secretary to the state minister for state enterprises.

The Indonesian sovereign bonds due 2017 gave up 1 point to 94 bid.

In Pakistan, soldiers recovered what is believed to be a U.S. unmanned drone aircraft near the border with Afghanistan.

The United States did not confirm the loss of the unmanned aerial vehicle.

A spokesman for the Pakistani military said its forces did not fire on the UAV and it is believed to have failed in flight.

The Pakistani bonds continued to weaken as it has lost "10 points in the last week and a half," the trader said.

"There are continued fears about their macroeconomic situation and the credit market environment as a whole," he said

The bonds due 2017 were spotted at 47 bid, 52 offered.

Emerging Europe in choppy seas

Emerging Europe's debt issues dealt with the highly volatile market as lawmakers in the United States grilled the financial leadership over the bailout program.

In Russia, the defense ministry announced it may be ready to offer a number of options to Ukraine in order to preserve the Russian navy's presence at the Black Sea port of Sevastopol.

The deals permit the fleet to remain at Sevastopol after 2017, when terms of the current treaty expire.

"We would like the Black Sea fleet to stay in Sevastopol after 2017 when the related treaty with Ukraine expires," said defense minister Anatoly Serdyukov, according to the Itar-Tass News Agency.

"Thus, we may present some mutually beneficial offers concerning the rent of the Sevastopol base, the development of the social infrastructure and cooperation in the defense industry, shipbuilding and some other spheres," he said.

Also, the South African market sank, though an encouraging sign emerged as six of the 14 ministers who resigned on Tuesday made clear their willingness to serve in a new government.

Finance minister Trevor Manuel was among those ready to serve.

"I think it was just poorly managed," said a market source.

"Trevor Manuel has explicitly said that he would serve," the source added.

Some had thought the group of resigning cabinet officers would form a new party.

Currently, the African National Congress is not the only party but strongly dominates South African politics, the source said.

"For the ANC to split up, it's not going to happen nicely," the source said.

It would not be surprising, but "part of the maturity process" in the young democracy, the source added.

The wait for NATO

Meanwhile, Turkey and Ukraine, as well as Georgia and Azerbaijan may have a longer wait to join NATO than once anticipated.

Diplomacy in the region has worn very thin and Russia may have renewed objections to the West's expansion toward its border.

"[Their memberships] could be left to time. Too quick a step might not be appropriate today," said general Ilker Basbug, Turkey's top military commander, during a press conference.

"I think [NATO] will move in a balanced way here," he said, according to the Turkish Daily News.

In addition, the conflict in Georgia, the independence of Kosovo and the treaties to establish defensive missile sites in the Czech Republic and Poland are still fresh in the minds of Russians, Basbug said.

Despite the difficulties farther east, NATO is likely to continue its expansion.

"Probably Croatia and Albania will become full members next year," Basbug said.

LatAm pulled wider

Latin American spreads were wider again as the credit market continued to face hardships even as equities were able to fight back to relatively unchanged levels.

The high-beta credits took the brunt of the punishment again on Wednesday.

In Ecuador, president Rafael Correa ordered the seizure of a dam constructed by Brazil's Construtora Norberto Odebrecht SA.

Some believe the company arranged a deal with the government, but details were scarce.

Ecuador's spreads were stretched wider as it was suspected that the country may default on a loan from a Brazilian bank.

In Argentina, investors waited to hear more about the possible $20 billion debt restructuring while president Cristina Kirchner was still in New York to meet with the U.N. general assembly.

Little is known about the restructuring, a strategist said, mostly because despite any near-term announcements Kirchner may make, "it has to be approved by the congress; that is clear."

"We do know she likes to come to New York and be treated well by banks."

Meanwhile in Miami, the case continued against Guido Antonini Wilson who was caught with a suitcase of $800,000, which he allegedly planned to smuggle to Kirchner's presidential campaign on behalf of Venezuela president Hugo Chavez.

A witness for the prosecution testified that another parcel containing $4.2 million may have cleared an Argentine customs checkpoint.

The governments of Argentina and Venezuela as well as Wilson deny any wrongdoing.

© 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.