JPMorgan's homebuilding notes an 'interesting choice'; emerging markets popularity may be cooling

By Sheri Kasprzak

New York, Oct. 5 - JPMorgan Chase & Co. plan to sell senior unsecured notes linked to the Standard & Poor's Composite 1500 Homebuilding index attracted attention in the structured products market Thursday.

"It is an interesting choice," said one market source when asked why JPMorgan is pricing notes linked to a homebuilding index.

"I would say they must have some confidence that [home construction] will be picking up soon, but there's a lot of data against that theory at this point."

A source at JPMorgan said he could not comment on the notes Thursday.

The notes pay par plus triple any positive return on the index up to a maximum payout of 36.75%. The notes are due April 23, 2008.

JPMorgan intends to price the notes on Oct. 13.

Emerging markets cooling off?

In other structured products news Thursday, one equity structurer said despite the recent surge of activity among emerging market indexes and currencies, emerging markets may be cooling off in their popularity.

"It's getting to the point where political instability is a big factor and when you weigh that in, these [emerging market deals] seem to be less popular now than they were a few weeks ago."

The market source pointed to the recent coup in Thailand as an event that may have started some investors thinking twice before jumping onto the bandwagon.

"It's great when things are stable and economies are growing and currencies are strong," he added.

"But the minute something big happens, that could all just crumble. It's important that investors know what they're getting into before they climb in with both feet. There's a huge amount of risk in investing in emerging market countries."

Instability in Thailand recently didn't stop Lehman Brothers Holdings Inc. from pricing $10 million in Foreign Exchange Structured notes linked to the baht earlier this week. The 0% notes are due Oct. 8, 2007.

In fact, a few weeks ago, another equity structurer pointed out that the baht was making a recovery and the news surrounding the coup may push the popularity of baht-linked deals.

Still the Prospect News calendar of upcoming deals has a number of emerging markets deals scheduled for pricing.

They include a Citigroup Funding Inc. sale of Pacers based on Cemex SAB American Depositary Receipts; deals from Credit Suisse (USA) Inc. linked to a currency basket including the Brazilian real, Mexican peso, Russian ruble and Turkish lira, a basket of Asian stock indexes, emerging markets indexes and currencies, a second basket of Asian stock indexes although with the Nikkei 225 accounting for 40%; an offering of reverse convertible notes linked to Companhia Siderúgica Nacional from HSBC; Chinese renminbi, Indian rupee, New Taiwan dollar and Singapore dollar-notes from Merrill Lynch; Asian stock indexes from Morgan Stanley & Co. Inc., although with the Nikkei making up 30%; a Morgan Stanley deal linked to the Amex China index; an offering from UBS linked to three Asian indexes; and deal tied to a basket of emerging markets stocks from Wachovia.

Nikkei still popular

Meanwhile, Japan's Nikkei 225 index remains popular as an underlyer.

On Thursday Merrill Lynch & Co. priced $29 million in 0% Market Index Target-Term Securities (Mitts) linked to the Nikkei 225 index.

Investors will receive 115% of any gain on the index with a floor of par.

Merrill priced a similar offering of $62.95 million in 0% Mitts linked to the Nikkei 225, Dow Jones Industrial Average and Dow Jones Euro Stoxx 50 in August.

Other Nikkei 225-linked notes have been priced within the past week. JPMorgan sealed the terms on $3.5 million in 0% annual review senior notes linked to the Nikkei in late September.

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