Emerging markets weaker; prices avoid equity-led disaster; CapitaCommercial prices S$150 million

By Aaron Hochman-Zimmerman

New York, March 14 - Emerging markets dug in deep on Friday to save itself from being dragged lower by floundering equities.

Many credits were able to prove their resiliency, but spreads widened and liquidity dried to a puddle.

"It's illiquid and choppy and difficult," a portfolio manager said, but added: "EM cash is holding in relatively well."

Bear Stearns was weighing on the market Friday as investors learned of JPMorgan's Federal Reserve-backed bailout for the suffering bank.

The news sank Bear's stock by 50% to a low of $26.85.

"This morning's market traded with the Bear Stearns news and the Dow [Jones Industrial Average] plummeting 300 points in a matter of minutes, just shows how jittery everyone is," a trader said.

However, "we saw a big rebound," an emerging markets strategist said.

"There's just general information fatigue ... negative information fatigue," he said.

Some market watchers have the opinion that "the sell-off has gone a little bit too far and the government might be more aggressive in tackling the problem," he said.

But, he added, "it's not entirely just about Bear Stearns any more.

"And we don't even know if they will be bought over the weekend," he said, but added that few banks want to take on the further potential for problems by acquiring Bear Stearns.

"Monday's Bear Stearns earnings release should help either solidify things or present the 'other shoe,'" a trader said.

In trading on Friday, which was "extremely quiet," according to a trader, Argentina led the retreat by shedding 1 point from its discount bonds due 2033.

In the primary, Singapore's CapitaCommercial Trust Management Ltd. priced S$150 million 3.05% notes.

From the open, volatility blazed past 30.00 and ended higher by 3.87 at 31.16, according to the VIX index. The index is a common yardstick for market volatility.

Treasuries also launched on the equity dump which left emerging markets wider by 13 basis points at a spread of 310 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors require to hold assets in emerging markets debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns was wider by 12 bps with a spread of 332 bps.

The diversified index has a less strict liquidity rule for inclusion.

Emerging Europe holds steady

Emerging Europe generally held on as equities whipped around after swallowing another bitter spoonful of negative market news.

Volumes stayed very light as investors were happy to avoid the fray on a Friday.

Russia's central bank reported a 50 billion ruble gain in monetary base for the week ending March 11, according to a central bank press release.

The base figures included cash in the vaults of credit institutions and required reserve balances which totaled 4.058 trillion rubles compared to 4.009 trillion rubles on March 3.

Also in Russia, OAO Gazprom said the price of natural gas in Europe may reach as high as $400 per 1,000 cubic meters, chief executive officer Alexei Miller told the RIA Novosti News Agency.

The price which is 13% more than previously expected, is due largely to the flailing dollar, Miller said.

Europeans are currently paying over $370 per 1,000 cubic meters, the report said.

In trading Friday, the Russian sovereigns due 2030 fell just 0.125 point to 114.75 bid. 115.05 offered.

However, in Ukraine prime minister Yulia Timoshenko said the country will not raise transit charges on Russian gas headed for Europe this year, according to the Itar-Tass News Agency.

Ukraine's rate for the transport of Russian gas to Europe is $1.70 per 1,000 cubic meters per 100 kilometers, the report said.

Also, Russia plans to host a meeting of leaders from around the Commonwealth of Independent States in St. Petersburg in early June, Itar-Tass reported.

"We're hoping an informal meeting between CIS leaders will take place within the framework of the St. Petersburg economic forum. Hopefully, the participants will make headway in understanding the concept of the development of CIS states," said first deputy foreign minister Andrei Denisov, according to Itar-Tass.

Elsewhere in emerging Europe, Kosovar Serbs occupied a U.N. courthouse in the town of Mitrovica, Kosovo.

U.N. riot police did not oppose the protestors who replaced the U.N. flag flying above the court with Serbia's, the BBC reported.

Turkey blocks land buys by foreigners

Turkey's highest court struck down a clause of the foreign direct investment law which enabled foreign companies in Turkey to hold property rights to land that is available to Turkish citizens, the Turkish Daily News reported.

Finance minister Kemal Unakitan disapproved of the decision which ended a five-year case, calling the ruling a "hindrance," the report said.

Supporters of the decision came from the main opposition party, the Republican People's Party (CHP).

"Law 4875 did not set any provisions for limitation of property acquisition of foreign companies and did not oblige reciprocity," said Fikret Gulen, a CHP parliamentary group advisor.

"Other countries let you acquire property, but deny you a free hand, for instance in property acquisition in coastal areas, forests, or on agricultural lands," Gulen said in the report.

The decision will not take effect until the related laws are rewritten and approved by parliament.

Also, Turkey's court of appeals chief prosecutor, Abdurrahman Yalcinkaya, filed a motion in constitutional court to have the ruling AK party banned for its unconstitutional anti-secular activities.

In addition, Yalcinkaya demanded that president Abdullah Gul, prime minister Tayyip Erdogan and other AK party members be barred from public office for five years.

The AK party won the majority in 2002.

The Turkish government bonds due 2030 were quoted unchanged at 149.5 bid, 150 offered.

Asia weakens on light volumes

Asian trading "gapped wider pretty much across the board ... liquidity was not great," a trader said.

"The market was very, very volatile with a very weak undertone," he said.

In the Philippines, foreign portfolio investments posted $371 million of inflows in February, according to a central bank press release.

"The net inflow reflected renewed investor confidence owing to positive economic reports such as the better-than-expected fiscal deficit of PHP 9.4 billion in 2007, the 21.4% expansion in exports in December 2007, and the strong 2007 earnings performance of several blue chip companies," the release said.

The Philippine bonds due 2030 fell 0.5 point to 128.5 bid, 129 offered.

In Indonesia, the government discovered that at least 20 million tons of coal have been exported illegally since 2005, the Jakarta Post reported.

An estimated $270 million in revenue has been lost to the black market trade, which skirts the 13.5% tax on coal production, the report said.

Most of the illegal coal came from unauthorized mining operations.

The Indonesian government bonds due 2018 were quoted unchanged at 105 bid.

Elsewhere in Asia, Pakistan's bonds due 2017 were spotted at 86 bid.

CapitaCommercial Trust prices S$150 million

The primary market continued to run on the local-currency track as CapitaCommercial Trust Management Ltd. priced S$150 million two-year fixed-rate notes with a coupon of 3.05%.

The notes come from its S$1 billion medium-term note program.

DBS Bank Ltd. was the dealer.

Proceeds will be used to refinance short-term borrowings and to finance the acquisition of property known as Wilkie Edge.

The company priced S$100 million three-year notes at 3.15% on Jan. 24.

Capita is a Singapore-based real estate investment firm.

LatAm trading hits brakes

In Latin American trading, desks cleared out early as equities hit the skids.

Low volume and high volatility left investors with few options, a portfolio manager said.

Brazil's government is examining options to control the appreciation of the real and encourage the country's exports, according to a market source.

Advisors to president Luiz Inacio Lula da Silva, with an eye towards 2010 elections, warned him to take action in time to allow reforms to take effect before the vote, the source said.

Under consideration is a higher tax on capital gains for foreigners invested in public bonds. A similar tax expired in 2006.

However, taxing foreigners may be viewed as a reactionary step, the source said.

In order to fight inflation, the economy would be best served by lower import taxes and restrictions, the source added.

The real was seen trading at 1.713 to the dollar.

The 11% Brazilian bonds due 2040 slipped 0.15 point to 132.8 bid, 133 offered. The 7 1/8% bonds due 2037 dropped 0.25 point to 106.5 bid, 107.25 offered.

Meanwhile, Argentina's economy minister Martin Lousteau lashed out at economists who accuse the government of taking liberties with economic data, the Buenos Aires Herald reported.

The government has the ability "to ensure that people's purchasing power grows sustainedly," Lousteau said, according to the report.

Some estimate that Argentina's true inflation rate is near 20%.

The peso was seen trading at 3.132 to the dollar.

The 8.28% Argentine discount bonds due 2033 dropped 1 point to 86 bid, 86.5 offered.

Also in Latin America, Venezuela's ties to rebel groups are a matter of concern to the United States, said secretary of state Condoleezza Rice.

Rice said that borders between nations should be respected, but not to the extent to allow "terrorists" a safe haven, she said.

Venezuela is not yet on the State Department's terror list, but Rice indicated it may soon be added.

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