Optimism about European debt crisis boosts some EM assets; Lebanon bonds stay in favor

By Christine Van Dusen

Atlanta, Oct. 5 - Emerging markets assets experienced a bounce on Wednesday as optimism that the European debt crisis could be resolved, following talk of bank recapitalizations, boosted risk appetite.

"The plethora of positive statements - first from the European Union and more recently from the International Monetary Fund - have sure stopped the rot," a trader said. "After a very heavy session yesterday the market reacted to the positive closing hour in the U.S. stock markets to open on a firm footing. The majority of credits are moving tighter on the day."

The Markit iTraxx SovX spread was 20 basis points tighter by the European afternoon and many of the liquid cash bonds - VTB Bank, Sberbank, Vimpelcom - that were hit hard Tuesday saw 30 to 50 bps bounces on Wednesday, he said.

But some names missed out.

"Certain sectors, like African names, are not moving," he said. "The wide markets in most assets still make getting things done hard work, but it's a much-improved story from 24 hours ago."

But even Kazakhstan's battered BTA Bank saw its 2018s move back up above 40.

"KazMunaiGaz is also catching a very strong bid, up 3 points as once again it snaps back in line with Gazprom," he said.

Trading still remained thin, another trader said.

"Of course it's still very thin and still hostage to flows and positions and supply and demand, and super frustrating," he said. "It still remains a great market to trade, from my view. Bid and offers are back, there are hugely differing views on where the markets are going and there's the ongoing risk of European Union political announcements and headlines. The U.S. Treasury market is choppy, and it's October too - never a quiet month."

Trading 'mixed'

Another trader called the day a "mixed bag."

"It's a mixed bag, all told, but for choice the market is trying to stabilize and flow seems balanced," he said. "It's not as crazy as this time yesterday morning, as the market attempts to find its feet."

Dubai's 2020s started the day 4 bps wider, and the sovereign's 2014s and 2015s saw sellers. Qatar's 2020s were 12 bps tighter, Abu Dhabi's 2019s 10 bps tighter, Lebanon's 2022s 10 bps tighter and Bahrain's 2020s 10 bps tighter.

Dubai Water and Electricity Authority bounced back about 15 bps after taking a beating on Tuesday.

"The 2020s are probably at 92 mid now, having traded with a 90 handle yesterday," he said. "Why anyone would own DEWA 2016s or Dubai 2015s is totally beyond me. Holders should move out to the much lower-priced DEWA and Dubai 2020s."

Qtel bounces back

Long-dated Qtel International bonds bounced back on Wednesday.

"It feels like there's demand on the 2021s," he said. "They are 16 bps tighter now, and the 2025s are at 96 bid, 96.75 offered, tighter by 12 bps."

Some small retail interest was seen in Emaar Properties and Kuwait's Kipco.

"More often than not, in this Middle East market, buying the panic down-trade proves fruitful," a trader said. "Flows, for the most part here, were balanced on the day."

Lebanon, sukuks stay strong

Higher yielders continued to suffer early on Wednesday but sukuks and Lebanon remained rock-solid, the trader said.

"Just don't get in the way," he said.

Sharjah Islamic Bank's 2016s were also strong on Wednesday, at 105 bid.

"That's super-impressive," he said.

Overall, though, the Middle East didn't experience a great bounce during the session, given the number of trapped positions from Tuesday, another trader said.

"But it's still enough for a 10 to 15 bps rally across the board," he said.

Sukuks, overall, lagged a bit on Wednesday.

"But that's perfectly explainable, given they never really went down massively yesterday," he said.

Ukraine sees liquidity

In other early trading on Wednesday, some liquidity returned to Ukraine-based Naftogaz and Oschadbank.

"We are buyers of Ukraine's 2020s and sellers of Ukraine's 2015s and City of Kiev's 2016s," he said. "As the United States comes in, interest has increased, but the sector still remains much less liquid."

By the end of the day, Ukraine's corporates became active, with Ferrexpo and Mriya Agro trading up on the Street, a trader said.

Metalloinvest trades up

Meanwhile, Russia-based Metalloinvest's 2016s were trading up at 82 to 83½ on the news that the company has posted a strong recovery after the 2009 crisis, with revenues up 54% year over year.

"The company stated it will remain focused on deleveraging and debt maturity expansion," a London-based analyst said.

Overall, Russia's corporates saw a bounce in the afternoon.

"Russia's 2030s are the center of attention at 1111/2," another trader said. "Clients have come looking for the bid in Russian banks and Ukraine. The good news is that at least some better volumes are trading now."

Turkey sovereigns see action

Looking to Turkey, the belly of the sovereign curve saw some action early in the session, as did benchmarks.

"The panic mode from yesterday has subsided, and with small retail buying, prices have been marked higher," a trader said.

But corporates were having a slow start, he said.

"The central bank cut reserve requirement ratios on foreign exchange deposits and announced that they will sell $1.35 billion in the auction today," he said.

Banks snap tighter

The reserve requirement cuts are seen as a positive for Turkish banks.

"It's likely to support their liquidity positions, but banks haven't responded to this news much," he said. "Local demand for Isbank is pushing its price higher while the rest of the banks are quieter. It's interesting to see how banks' spreads have somewhat converged and Isbank is outperforming all others while Finansbank is badly wounded."

By late in the European trading day, most banks had snapped 20 to 30 bps tighter, another trader said.

"There's solid performance on the Turkish sector today with banks and sovereigns all up," he said. "Retail investors were nibbling on Garanti Bankasi AS' 2021s and Akbank's 2015s while Isbank's 2016s were powering on with the interest from the locals. Elsewhere, similar to the recovery in other high-beta sectors, we even saw demand for Yasar Holdings and Yuksel Insaat today."

© 2015 Prospect News.
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