Emerging market issuance outlook hinges on external factors, S&P says

By Reshmi Basu

New York, April 12 - Despite an appetite for emerging market bond issues, geopolitical events such as the attempted presidential assassination in Taiwan, presidential impeachment in South Korea and tension in the Middle East, have created investor wariness, according to a Standard & Poor's report Monday by Diane Vazza, managing director, and Devi Aurora, director.

Moving ahead, emerging markets issuers will take advantage of the appealing funding environment that has been aided by central banks in key regions that have maintained an accommodative stance, the rating agency said.

However, the report warns that the sharp run up in commodity prices, fueled by strengthening economies in the United States and Japan as well as China's hungry manufacturing industry, may pose a risk to the emerging market gains.

Emerging market issuance can be undermined by a number of external factors.

"Any hiccups in the global growth outlook - especially in Europe where weakness is already manifest - or an unexpected acceleration in interest rates in the U.S. could impede capital flows to the emerging markers and constrain financing prospects, particularly for weaker-rated borrowers," the analysts said in the report.

In the first quarter, $35 billion of new bonds were issued, which represents the second highest volume recorded historically in the first quarter, led by South Korea and Mexico.

Integrated oil and gas was the most active industrial sub-sector for the first quarter.

"Borrowing by entities in this sector likely reflects increased investment spending in line with improving global economic prospects, receding fears of the impact of larger oil supplies from Iraq, and relatively tight inventory in the U.S.," said the report.

The relatively small utility sector continued to show the fastest growth while banks, financial institutions and telecommunications were still running below year-ago levels in the first quarter.

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