Emerging markets mixed; new issues primed; Psalm plans $1 billion; funds see big inflows

By Aaron Hochman-Zimmerman

New York, May 12 - Emerging markets were mixed on average as Latin America underperformed emerging Europe and Asia.

Market sentiment remained strong as few were surprised that the market would be subject to mild corrections after weeks of rallying.

It is still better to hold long positions, a trader said.

Meanwhile, in terms of inflows into the sector, "emerging markets bond funds recorded their best week since early [first quarter 2008]," according to data compiled by EPFR Global.

Still, even higher oil prices could not completely buoy the resilient Venezuela.

Its bonds due 2027 dropped ¼ point while the recently hard-charging Argentina lost 1 point from its discount bonds due 2033.

Equities were able to climb back late into the session which undercut volatility as it sank 1.07 to close at 31.80, according to the VIX. The index is a common measure of market volatility.

As a sector, emerging markets widened by 5 basis points to a spread of 490 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

Asia consolidates early

Asia "felt quite consolidated this morning," a trader said, but "did not follow through this afternoon."

Levels drifted through the second half of the day without "bouncing back" with equities, he said.

Some accounts may be selling "to prepare for issuance in the next week or so," he said, including Indonesia which sold off "ahead of expectations that PLN would follow a roadshow with issuance."

The Philippines also sold "a little bit" as a deal from Power Sector Assets and Liabilities Management Corp. "looks more imminent," the trader said.

Psalm plans to issue as much as $1 billion in bonds (B1/BB-/), a buysider said.

The bonds will price on behalf of public utility Napocor.

Deutsche Bank, HSBC and Morgan Stanley will act as bookrunners for the deal.

No timing has been released for the deal.

Psalm is a Manila-based power company.

Also in the Philippines, foreign direct investment took on inflows of $16 million in February 2009, topping the $13 million total during January, according to the central bank.

The $29 million was 75.2% lower than the $117 million total reached in the first two months of 2008.

The Philippine sovereign bonds due 2030 were spotted at 124 bid, 125 offered.

Meanwhile in Indonesia, president Susilo Bambang Yudhoyono set a priority of protecting individuals from the effects of the global recession, reported the Jakarta Post.

"The right and realistic theme for these two years is recovery. It is not about achieving the highest growth possible, but protecting the people from the impact of the crisis," he said, according to the report.

Yudhoyono made priorities of tackling unemployment and reducing inflation among others.

If budgets at all levels of government followed the example, perhaps "we can be a developed country," he said.

The Indonesian bonds due 2019 added ¼ point to 124¼ bid, 125¼ offered.

In Pakistan, fighting in the Swat Valley continued between the army and Taliban militants as the government expects its forces to take heavier casualties in offensives planned in the coming days.

Taliban fighters hold strategic positions and have set explosives in towns the government intends to recapture.

The Pakistani bonds due 2017 were quoted at 58 bid, 62 offered.

LatAm pushed lower

In Latin America, levels were mostly lower as investors were "sitting and waiting" for market-moving news with a watchful eye on data from the United States, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The market continues to go through "a digestive period," he said, but "commodities continue to be a positive story" despite disappointing export numbers from China.

"Oil to a certain extent continues to support Venezuela," he said, as light sweet crude prices flirted with the $60 per barrel level.

The 9¼% Venezuelan sovereigns due 2027 were lower by ¼ point to 64¼ bid, 65½ offered.

Oil's gains to a lesser extent helped to support Mexico where the national oil firm Petroleos Mexicanos announced that it will sell "around $500 million" in floating-rate and fixed-rate bonds denominated in pesos, a buyside source said.

The seven-year fixed-rate portion is expected to price at around Mbonos plus 160 bps, he said.

The existing 5.95% Mexican bonds due 2019 were lower by ¼ point at 101½ bid, 102½ offered.

In Brazil, some profit-takers knocked the 7 1/8% bonds due 2019 down by 1/8 point to 99 7/8 bid, 101 offered.

In Colombia, president Alvaro Uribe will learn on Wednesday whether the legislature will schedule a referendum to determine whether or not he is allowed to seek a third term.

"That's been sort of on again, off again," Alvarez said about the conservative Uribe's future in politics.

Legal battle for Falklands oil

In Argentina, ownership of the off-shore oil fields around the Falkland Islands, South Georgia and the South Sandwich Islands is being contested in a United Nations court by Buenos Aires and London.

The two countries fought a five-month war over what is locally called the Malvinas in 1982 resulting in a clear British victory.

Argentine foreign minister Jorge Taiana called the British claim "unacceptable and inadmissible," according to the Buenos Aires Herald.

Buenos Aires will fight any "illegal occupation" of Argentina, he added.

The 8.28% Argentine discount bonds due 2033 gave up 1 point to 35 1/8 bid, 36¼ offered.

"Argentina had been a big leader and has started to pull back," Alvarez said.

Emerging Europe 'stronger again'

Emerging Europe was "reasonably choppy," but "today it feels stronger again" after a weaker Monday, a trader said.

The market still feels like it is moving higher; even the bears are calling for a rally into the summer, he said.

In Ukraine, Moody's chopped the country's debt rating to B2 from B1, but the rating action "probably called the bottom," the trader said.

The rating agencies are usually seen to lag the market by at least six months, he said.

The still-improving Ukrainian bonds due 2016 were spotted at 70 bid, 72 offered.

In Russia, prime minister Vladimir Putin said again that it will take a concerted global effort to nurse nations' economies back to health.

"The global crisis showed graphically that in the world economy, as well as the world politics, one, even a very powerful leader cannot ensure stability, sustainability and predictability," Putin said in Tokyo, according to the Itar-Tass News Agency.

"To resolve this task the leadership should be collective," he said.

Putin was in Japan to sign an agreement to share nuclear technologies and services.

The Russian government bonds due 2030 added ¼ point to 100 3/8 bid, 100½ offered.

Elsewhere, in Turkey the economy is poised to begin its recovery in the second quarter, said central bank deputy governor Burhan Goklemez, according to the Hurriyet Daily News.

"It is also possible the economy will reach positive growth figures over the last quarter of 2009," he said at a textile industry conference.

In recent months, the textile industry has grown in percentage of goods exported, he said, despite referring to the "Chinese threat" in the sector.

The Turkish sovereign bonds due 2030 added 1 point to 149 bid, 149½ offered.

Emerging Europe waits for new deals

The primary remained quiet in emerging Europe, but investors kept an eye for new deals which are expected within the coming days.

Croatia plans to issue a €750 million bond during the week of May 11 via BNP Paribas, Deutsche Bank and Unicredit.

"There's not much going on with the [existing] Croatia bonds," the trader said about a market sector that often behaves in a "cloak and dagger" fashion.

Also, South Africa has asked Barclays and JPMorgan to lead an upcoming dollar-denominated benchmark-sized offering (Baa1/BBB+/BBB+).

Standard Bank will act as co-lead manager for the Securities and Exchange Commission-registered deal.

The roadshow for the deal will begin on Wednesday.

The South African bonds due 2022 were seen at 92½ bid, 93½ offered.

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