Emerging markets slip lower; Argentina hurt by farmers' strike; local deals test primary waters

By Aaron Hochman-Zimmerman

New York, March 26 - Emerging markets weakened along with equities, which were hit with poor housing data from the United States.

"Everyday is a rough day almost," an emerging markets strategist said.

"It's not like the past," a trader said, adding that the market's ailments cannot be cured with a simple swelling of optimism from investors.

"It really does need something more material," he said.

In trading, Argentina led the losers as its discount bonds due 2033 shed 1.5 points on the deepening farm labor crisis.

In the primary, two local deals sprouted up, including a 500 million ringgit offering from the Bank of India and a possible NT$8 billion offering from Taiwan's Far East Textile Ltd.

Volatility was down in the early afternoon but crept back to end higher by 0.36 at 26.08, according to the VIX index. The index is a commonly used yardstick of market volatility.

With Treasuries gaining some favor, emerging markets widened out by 5 basis points to a spread of 301 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to keep assets in emerging markets debt.

LatAm recedes on light trading

In Latin American trading "we continue to see a lot of weakness," a strategist said on a day of light volumes.

"Generally spreads were wider across the board," he said. Although, "there was very decent flow in corporate names,"

Brazil's mining giant, Companhia Vale do Rio Doce SA (CVRD), suspended its deal to buy Switzerland's Xstrata plc.

"While Vale and Xstrata continue to believe that a combination of the two companies could realize significant value for both sets of shareholders, we have not been able to reach agreement. We have therefore mutually decided to cease discussions," said Mick Davis, Xstrata's chief executive officer, in a press release.

"CVRD was tighter by 10 [bps]," the strategist said about the spread before the deal's collapse, and "since then lost all that gain."

The Brazilian sovereigns slipped as well.

The highly watched 11% bonds due 2040 were quoted down 0.2 point to 133.8 bid, 133.9 offered. The 7 1/8% bonds due 2037 fell 0.65 point to 107.75 bid, 108.25 offered.

In Venezuela, the 9¼% bonds due 2027 also fell 0.25 point to 96.25 bid, 96.75 offered.

"Vene is kind of following Argy today," a buysider said.

Farmers holding firm

"There was some weakness in Argentina," the strategist said, as the farmers protesting recent tax hikes on exports of products such as soy and sunflower seeds were on strike for the 13th day.

More reports from the local press detailed food shortages and roadblocks on the country's roadways, a market source said.

The farmers have agreed to allow dairy products to pass through the roadblocks but are still refusing to sell grains.

President Cristina Kirchner made no moves toward reconciliation with the farmers. Both Cristina and her husband, former president Nestor Kirchner, are known to be unyielding in negotiations, a market source said.

As food supply dwindles, the strike will undoubtedly damage the governments' approval ratings, although it is unclear by how much, the source said.

Eventually concessions will likely be made to the farmers, including a reworking of the export tax structure, another market source said.

"I think it's going to linger for a while," the buyside source said.

"Maybe if the protests become more violent" the government will be forced to make some concessions, the buysider said.

On the news, the 8.28% Argentine discount bonds due 2033 dumped 1.5 points to 85 bid, 85.95 offered.

Emerging Europe slow, sour

Market tone in emerging Europe was sinking along with prices as investors began to realize that even if the worst is behind, there is still a long road to recovery.

Many had thought "the tone was getting better," a trader said about the beginning of the week "and maybe we'd seen the worst."

"It doesn't feel like that," he said.

"Volumes are poor in general, I wouldn't expect that to change ... until we're well down the recovery road," he said.

In Turkey, debates in parliament over pension reform are scheduled to begin this week, a market source said.

On the heels of recent labor demonstrations, labor officials met with the government on Monday to discuss legislation which, if passed, would lower the retirement age from the current age of 65 years, by five or seven years.

The government showed little interest in lowering the retirement age but was willing to cut the number of days that employees must pay into retirement funds to 7,200 days from the 9,000 days in the currently proposed bill.

The legislation is expected to win approval in the coming days, the market source said.

The Turkish government bonds due 2030 sank 1 point to 150.125 bid, 150.325 offered.

Also in emerging Europe, the European Union gave an ultimatum to Serbia, asking the country to quickly join the E.U. or to face isolation.

An E.U. delegation will be in Belgrade Thursday to discuss the options with the government.

Serbia, along with E.U. member Spain, still does not recognize Kosovo's sovereignty.

Meanwhile in Kazakhstan, a military court convicted in absentia Rakhat Aliyev, the former son-in-law of Kazakhstan president Nursultan Nazarbayev, of an attempted coup, according to the Itar-Tass News Agency.

Aliyev was given a 20-year prison sentence.

Nazarbayez is widely believed to use various means to consolidate his own power.

Elsewhere in Commonwealth of Independent States, Ukraine and Russia will resume negotiations over 2008 oil prices, according to president Viktor Yushchenko's web site.

"I would ask Naftogaz of Ukraine, Gazprom, Ukrainian and Russian authorities, which are responsible for the matter, to make a good use of these agreements in shortest possible time," he said.

The Ukrainian government bonds due 2016 were quoted at 98.375 bid.

Russia's finance minister pushes tax cuts

Also in Russia, finance minister Alexei Kudrin proposed a $4 billion tax cut on oil production for 2009, according to a market source.

State-run OAO Gazprom will be exempted from the tax to avoid a further burden on its near-term capital expenditures, the source said.

The cut comes in place of a proposed reduction of the value added tax. A cut from the current 18% to 12% or 13% was recommended for 2009 by the economy ministry.

Russian media has reported president Vladimir Putin's support for Kudrin's plan, according to the source.

The Russian sovereigns due 2030 were seen unchanged at 115.125 bid, 115.25 offered.

Asia weaker on quiet session

Asia traded lightly and weakened as liquidity remained scarce and advancing Treasuries sent spreads wider.

In the Philippines, imports increased by 27.7% to $5 billion in January, up from $3.9 billion in January 2007, according to the national statistics office web site.

Exports increased by just 6.1% to $4.2 billion in January, leaving the country with a $756 million trade deficit, compared to a $272 million surplus in 2007.

The Philippine sovereigns due 2030 slipped 0.375 point to 130.625 bid, 131.125 offered.

In Malaysia, Malayan Banking announced its intentions to buy a $1.5 billion, 56% stake in Indonesia's Bank Internasional Indonesia (BII).

The controlling stake is for sale by Singapore's state-run investment firm Temasek Holdings and South Korea's Kookmin Bank.

Maybank also offered another $1.2 billion for the remaining 44% of BII.

Meanwhile, the Indonesian government was criticized by the World Bank for allowing 40% of its fuel subsidies to go to the rich, the Jakarta Post reported.

"The fuel subsidy has been poorly targeted; it only promotes consumption and does not help the poor," the World Bank's newly appointed country director for Indonesia, Joachim von Amsberg, said in the report.

The government will need to reallocate its subsidies and increase the amount to 130 trillion rupiah from 45 billion rupiah, von Amsberg said.

The Indonesian government bonds due 2017 were quoted at 105 bid, 106 offered.

Pakistan's bonds due 2017 were flat at 86 bid, 88 offered.

Meanwhile, the Bank of China reported a 31% increase in profits to $8 billion in 2007.

The bank carries $5 billion of exposure to subprime loans, which is the largest exposure of any bank in the region, and is expected to face a more difficult year in 2008 than in 2007.

"The country's GDP is expected to continue to grow quickly in 2008. However, with uncertainty looming in the global economy and impacts of government austerity measures becoming more apparent, economic growth may stabilize on high and even see a moderate slow down. The government is expected to step up and fine-tune its economic control measures, implement stable fiscal policies and tighten monetary policy," Xiao Gang, chairman of the Bank of China, said in a press release.

Local deals surface in primary

State Bank of India informed the Bombay Stock Exchange that it plans a stand-alone issuance of 500 million ringgit of fixed-rate bonds on Monday. The five-year bonds will carry a 4.9% coupon.

State Bank of India is a New Delhi-based state-run bank.

Taiwan's Far East Textile Ltd.'s board of directors approved the issuance of up to NT$8 billion of unsecured bonds.

The bonds will be issued at par of NT$1 million and will have a tenor of five years or less. The coupon is to be determined.

The company said the proceeds will be used to repay short-term bank loans and to strengthen its finance structure.

On the topic of underwriting, the release said the bonds will not be issued to the public.

The board of directors voted on the proposed issuance at a meeting on Wednesday.

Far East Textile manufactures polyester fibers, yarns and fabrics and is based in Taipei, Taiwan.

© 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.