Emerging markets follow equities upward; Brazil, high-betas improve; Bank Pozitif prices $150 million

By Aaron Hochman-Zimmerman

New York, Feb. 13 - On cue with U.S. equities, emerging markets began climbing higher after the announcement of January's U.S. retail sales.

Trading saw the resurgence of Brazil, which had been one of the most damaged credits of last week and early this week.

The 8.25% Brazilian bonds due 2034 saw gains of 2.25.

The primary was able to produce new issues from Turkey's Bank Pozitif, which priced $150 million, and Israel's Elbit Imaging Ltd., which priced NIS 713 million.

In the short term, tone and confidence were back, but it was not enough to convince most investors that the there are no tough times ahead.

"People are breathing," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"For now we probably have hit a low," an emerging markets strategist said.

"[The market] has found a base to trade a little bit to upside," he said.

Still, "EM for awhile will continue to be governed by events outside its domain," he said about the strong connection emerging markets have with the developed world.

"There is no single country that is leading the trend," he added.

Still, many have doubts about emerging markets' ability to cloister themselves from a deepening major market crisis.

"Emerging markets need to join industrial countries in the macroeconomic and regulatory policy response. Such a collaborative approach offers the best hope for ensuring the stability of the global economy," said International Monetary Fund managing director Dominque Strauss-Kahn in a speech on Wednesday.

"It has become increasingly clear that the macroeconomic effects of the financial market crisis will be serious and that no regions will escape entirely unscathed," he added.

The IMF now estimates a 4.1% rate of world growth in 2008, down from 4.9% in 2007.

"I'm more on the cautious side," a buysider said about the hope that emerging markets may avoid spillover weakness, at least for the next few months.

Volatility opened lower and continued southward to close down by 1.45 at 24.88, according to the VIX index. The index is a widely accepted yardstick of market volatility.

Emerging markets were able to tighten against Treasuries by 3 basis points to a spread of 277 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will accept to hold money in emerging markets debt.

LatAm bounces back

Latin American trading rode the wave of surging equities to recover some of the ground it had lost in recent sessions.

Volumes were still light, but sentiment gave investors cause to step up to the table and play.

People have been looking for a reason to cover some shorts on the LatAm side," IDEAglobal's Alvarez said.

That opportunity was afforded by the retail sales figures," he said.

Typically stable Brazil staged the biggest turnaround.

"In the same way that it was a leader on the downward, it's a leader on the bounce back," Alvarez said.

Brazil's 7 1/8% government bonds due 2037 were up 1.125 to 107 bid, 108 offered. The 8¼% bonds due 2034 were better by 2.25 to trade at 120.25 bid.

In Argentina, president Cristina Kirchner claimed that the government's plan for efficient energy has saved the country 600 megawatts of power in its first month, according to the Buenos Aires Herald.

The plan included a program that had janitors, with police escort, collect older light bulbs in order to replace them with high-efficiency bulbs. The government also asked people to restrict air conditioner use.

Kirchner also announced that the plan, which saved 600 megawatts of a total 18,000 megawatt peak capacity, will be mimicked by the government of Chile with Argentine assistance.

"It's a drop in the ocean," the strategist said.

The 8.28% Argentine discount bonds due 2033 were better by 0.25 at 89.75 bid, 90.25 offered.

In Venezuela the 9¼% sovereigns due 2027 were up 1.25 to trade at 99.25 bid, 99.6 offered.

Also in Latin America, Jamaica announced it will hold a non-deal roadshow with support from Deutsche Bank from Feb. 26 to Feb. 28 in New York and Boston.

Bank Pozitif, Elbit able to price

In the primary market, after Petrobras showed its skittishness over trying the open waters of the major-currency market, Turkey's Bank Pozitif found calmer seas to price a $150 million deal.

The Istanbul-based bank priced a five-year note at par with a coupon of 7.1%.

Citigroup and Commerzbank acted as bookrunners for the deal.

Smaller issuers also found success in the littoral waters of the local markets.

Elbit Imaging Ltd. priced NIS 713 million of unsecured non-convertible series B notes with a coupon of 5.4%.

The principle and interest are linked to the Israeli consumer price index.

Elbit also listed for trade NIS 305 million of unsecured non-convertible series A notes with a coupon of 4.5%.

The coupon was reduced from 5% on Feb. 4.

The Tel Aviv, Israel-based firm primarily deals in the development of commercial centers, hotel and property management in central and eastern Europe.

China's Huadian Power International Co. Ltd. announced its plans to sell 5.3 billion yuan six-year bonds with one-year warrants.

Each of 53 million available warrants is redeemable for one A share of the company.

Proceeds from the sale will be used to purchase or build new power facilities.

Huadian is a Beijing-based state-owned power company.

Also in China, Ping An Insurance Co. of China Ltd. announced its plans to issue 41.2 billion six-year A share bonds with one-year warrants.

Two warrants are redeemable for one A share.

Proceeds will be used for working capital.

Ping An is a Shenzhen, China-based insurer.

Market watchers have been anticipating a wave of new issuance, but volatility has prevented all but a few new issues in the new year.

"I would imagine there are a couple of Indonesian banks who would hit the market when things settle down a bit," a trader who specializes in Asia said.

Emerging Europe floats with equities

Prices in emerging Europe were helped by the stability and positive tone in equities as the morning's announcement of positive retail sales soothed the frayed nerves of investors.

"It's been quiet ... the market's been better," an emerging markets strategist said.

"We continue to be at the expense of the equity side," he said.

In Russia, OAO Gazprom and Ukraine's Naftegaz Ukrainy have agreed to take equal parts of two new entities, said Gazprom chief executive officer Alexei Miller, according to the Itar-Tass News Agency.

One of the new companies will focus on importing fuel into the Ukraine, the other will sell gas on the domestic market, Miller said.

Elsewhere, the government of Iraq is reconsidering arrangements the former regime made with Russian companies.

Russia announced the write off of $12 billion in Iraqi debt on Monday in order to pave the way for Lukoil to invest $4 billion in Iraqi oil projects.

The Russian government bonds due 2030 slipped 0.5 to 114 bid, 114.5 offered.

The lightly traded Iraqi bonds due 2028 were quoted at 71 bid, 72 offered.

Meanwhile in Ukraine, president Viktor Yushchenko announced that his government is willing to pass legislation that would ban the creation of NATO bases in Ukraine.

Yushchenko's comments come after Russia president Vladimir Putin's warning that Russia may decide to pre-program missiles to launch on Ukraine if it becomes a member of NATO.

The Ukrainian bonds due 2016 were better by 0.625 to 99.875 bid, 100 offered.

Turkey's sovereign bonds due 2030 added just 0.125 to trade at 154.25 bid, 154.5 offered.

Asia better, benchmarks flat

Asian trading was bolstered by strong data and equity movement in the United States.

Volumes were up slightly, and confidence was high enough for some investors to take risk back onto the field.

In the Philippines, the Bureau of Internal Revenue surpassed its collection target in January, according to the Manila Times.

The bureau collected PHP 32 billion, which is 4.8% higher than the expected draw of PHP 30.5 billion.

The bureau is responsible for the collection of 70% of the government's revenues, the report said.

The Philippine sovereign bonds due 2030 were quoted flat at 130.25 bid, 131 offered.

In Indonesia, financing firms expect a 20% rise in loans in 2008, according to the Jakarta Post.

The Indonesian Financial Services Association said the cheaper lending rates would benefit the auto industry, which has been the leader in borrowing, the report said.

The Indonesian government bonds due 2017 were spotted at 103.25 bid, 103.75 offered.

In Pakistan, the army is deploying troops to enforce order ahead of Monday's elections.

Some fear the army's presence may influence voting, but the military insisted its presence at the polls come at the request of civilian leadership.

The Pakistani bonds due 2017 also flat at 83 bid, 87 offered.

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