Emerging markets rally back; investors find improved tone; Vimpelcom joins Gazprom in rumor mill

By Aaron Hochman-Zimmerman

New York, Feb. 20 - Emerging markets were poised for the afternoon's turnaround even as equities were hurt by the morning's data release.

"The market got whipsawed; it was weak in the early going," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The recovery, which was already in the making, was spurred on by the release of the minutes from the recent Federal Open Market Committee meetings, he said.

However, "things were already turning around before that," said an emerging market strategist, due to better-than-expected results from Hewlett-Packard Co.

"It was the same the other day with Wal-Mart [Stores Inc.]," he said.

Trading was widely better with few stand-out performers, but rumors floated across the primary regarding a possible $1.5 billion offering from Russia's Vimpelcom.

Also, emerging markets 2007 total trading fell 0.5% short of the record set in 2006, according to a press release from the Emerging Markets Traders Association.

The total trading volume of 2007 reached $6.489 trillion, compared to $6.523 trillion in 2006.

Emerging markets' performance in the fourth quarter represented a 16% drop from the volume recorded in 2006. During the fourth quarter of 2007 $1.366 trillion was traded, compared to $1.634 trillion during the same period of 2006.

It was the lowest quarterly volume in two years, according to the survey's findings.

Volatility made a slow decline throughout the session, with the VIX closing lower by 1.19 at 24.40. The index is a commonly used measure of market volatility.

Emerging markets as a sector went unchanged on a spread basis, holding at 266 basis points, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will require to hold assets in emerging markets debt.

Emerging Europe slips, crawls back

Trading was largely better even as some of emerging Europe's benchmarks were lagging.

Prices followed equities lower in the first half of the day but made their comeback as equities reacted well to a combination of positive earnings and encouraging news from the FOMC.

Chairman Alexei Miller of Russia's OAO Gazprom was in Iran on Tuesday to discuss the development of "two or three" blocks of the South Pars gas field in Iran, according to a company press release.

"The parties discussed potential development of cooperation between Gazprom and Iranian companies in the oil and gas sector. Exploration and development of oil and gas fields as well as joint gas transportation, processing and marketing activities were named as the major areas of interaction," the release said.

The Russian sovereigns due 2030 dropped 0.875 to 112.75 bid, 112.90 offered.

The Ukraine's bonds due 2016 slipped only 0.125 to 99.625 bid, 100.125 offered.

In Turkey, the government, state planning organization announced 21.5 billion lira in spending on social programs and infrastructure in 2007, according to the Turkish Daily News.

Funds were allocated in the areas of communication, transportation, health care and tourism.

The Turkish government bonds due 2030 were down 1.25 to 152.75 bid.

In South Africa, the government's new budget proposal introduces new taxes on electricity and petroleum use as well as vice taxes on tobacco and alcohol, reported the Times of South Africa.

Tax relief for some individuals and corporations would amount to 7.7 billion rand.

The budget included a 60 billion rand loan to the troubled national power provider Eskom to be repaid in three years.

The South African bonds due 2017 were flat at 120 bid, 122 offered.

Elsewhere, Russian foreign minister Sergei Lavrov denounced the European Union's peacekeeping police force in Kosovo as illegal.

The E.U. forces have been guarding border crossings after some border posts were burned in protest by Kosovar Serbs on Tuesday.

As some had predicted, the winds of independence may reach beyond Kosovo's new borders.

In the Palestinian territory, presidential aide Yasser Abed Rabbo said the Palestinian National Authority will consider a declaration of independence if talks with Israel are unsuccessful, the BBC reported.

In Armenia, prime minister Serge Sarkisian was declared the winner of the presidential elections held Tuesday, but his closest rival, Levon Ter-Petrosian, disputed the results.

The watchdog group, the Organization for Security and Cooperation in Europe, said the elections generally met with standards.

LatAm recovers in afternoon

Latin American trading was taken for a ride by the changing tides in the equity market.

The dive on the early data was turned around sharply by the release of recent FOMC meetings.

The price of oil "gave some firmness to the usual oil contingent," IDEAglobal's Alvarez said.

Venezuela was helped by oil's recent crossing of the $100-per-barrel threshold.

The 9¼% Venezuelan government bonds due 2027 were up 0.5 to trade at 99.5 bid, 99.6 offered.

The national oil firm PDVSA's notes due 2027 were better by 0.375 to trade at 58.75 bid, 59.25 offered.

Light sweet crude was spotted trading at $100.75 per barrel.

In Brazil, police said the theft of information and hardware from state-oil giant Petroleo Brasileiro SA was more likely corporate espionage than petty theft, reported the Buenos Aires Herald.

Law enforcement will continue the investigation.

"That's regarding the new big oil field that they discovered," Alvarez said.

"It's an up and coming mode of envy," he said about the theft. "It's not surprising; it's pure corporate greed at work."

The 11% Brazilian bonds due 2040 were seen better by 0.2 at 132.05 bid, 132.15 offered. The 7 1/8% bonds due 2037 gained 0.5 to trade at 105 bid, 106.45 offered.

Argentina's 8.28% bonds due 2033 bucked the winning trend by losing 1 point to trade at 87.25 bid, 87.85 offered.

Rumors, local offers brought to primary

The primary looked as though it might stand on its feet again as recent rumors about a $2 billion deal from Russia's OAO Gazprom were followed by rumors about a $1.5 billion deal from Russia's Vimpelcom.

The market is still trudging through difficult terrain for the placement of a new issue.

"It's a difficult proposition to get in there," said IDEAglobal's Alvarez.

Still, some new issuers are willing to test the waters.

OAO Sibirtelecom (/B+) plans a $90 million bond issue with an expected coupon of 7.7%, according to a market source.

The bonds are also expected to price at a discount pushing the yield between 9% and 9½%.

Pricing is expected shortly.

MDM Bank will act as the bookrunner for the deal.

Sibirtelecom is a Novosibirsk, Russia-based fixed-line telecom operator.

In local currencies, Allied Bank expects to offer a PHP 3 billion tier II bond offering with a coupon of 6 7/8% and a maturity of five to 10 years, according to a market source.

ING will act as the bookrunner for the deal.

The bonds will be offered until Feb. 29.

The Manila-based bank intends to bolster its cash reserve to PHP 20 billion from PHP 500 million before a possible merger with the Philippine National Bank later this year.

"There's plenty of liquidity in that local bond market," a trader said.

"It might be that you'd expect some in dollars," he said, but only under better conditions.

Also, PT Indosat Tbk. will issue a rupiah-denominated bond and a rupiah-denominated sukuk in the first half of the year, according to a press release.

Danareksa Sekuritas and Mandiri Sekuritas will act as bookrunners for the deal.

Proceeds will be used to fund the company's expansion plans.

Indosat is a Jakarta-based telecommunications provider.

Asia gets anticipated bounce

Meanwhile, Asia trading received an anticipated bounce.

"It was lining up for a bit of a bounce," a trader said even with the morning's poor early performance.

"Even in the morning we saw accounts here looking to put risk to work," he said.

Still, in the long-term "we're pricing in a lot of bad news," he said, hoping that market conditions do not have to absorb any unforeseen damage.

In the Philippines, the central bank expects consumer prices to increase throughout the first half of the year, according to the Manila Times.

Inflation from January to June would reach 5%, but the year's average will be closer to 4%, the bank said.

The Philippine bonds due 2030 were seen at 129.75 bid, 130.25 offered.

In Indonesia, experts expect the country to feel one-quarter of the fallout from an economic slowdown in the United States.

The University of Indonesia Institute for Economic and Social Research executive director Chatib Basri said if the pattern of prior U.S. recessions holds, a 1% slowdown would translate to a 0.2% to 0.25% slowdown in Indonesia, according to the Jakarta Times.

Basri's prediction for 2008 anticipates Indonesian growth to shrink to 6.25% from an earlier projection of 6.5%.

Still, the major effects may not be felt in Asia until the second half of the year, he said.

The Indonesian bonds due 2018 were quoted at 103.25 bid, 104.25 offered.

Pakistan president Pervez Musharraf announced he will not step down in light of a defeat for his party in Monday's elections.

The parties of former prime minister Nawaz Sharif and slain former prime minster Benazir Bhutto will likely form a coalition, which will hold more than half of the seats in parliament, a BBC analyst said.

The Pakistani bonds due 2017 were better with the stability the country has shown since Monday's elections, a trader said.

The market is happy that the two sides are talking, he said.

The bonds were spotted at 86.5 bid, 87.5 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.