EMTA survey puts emerging markets debt trading at $1.23 trillion in first quarter

By Angela McDaniels

Tacoma, Wash., May 21 - Trading in emerging markets debt instruments declined for the third consecutive quarter, according to EMTA's First Quarter 2008 Emerging Markets Debt Trading Volume Survey released Wednesday.

Participants in the survey reported turnover of $1.23 trillion in emerging markets debt volume, according to an EMTA news release. This figure is a 28% decrease compared to the $1.70 trillion reported in the first quarter of 2007 and a 10% decline compared to fourth-quarter 2007 volume of $1.37 trillion.

EMTA said that emerging markets trading volumes in the first quarter, which represented the lowest quarterly volume in almost four years, was generally consistent with the reduced level of financing activity attributable to the continuing effects of the credit crunch that began in mid-2007.

While the results were affected by the absence of several regular contributors, including Bear Stearns, EMTA believes that the overall trends reflected in the report are still broadly representative of the emerging markets asset class.

"Trading volumes have declined as a result of speculative and non-core investors pulling out of the asset class and less investment bank activity," Jerome Booth, head of research at Ashmore Investment Management, said in an EMTA new release.

Booth argued that this, in fact, augured well for the asset class.

"Strategic investor appetite is in our view increased as a direct result of the credit crunch - long-term strategic investors including central banks are buying emerging markets debt now to reduce risk and in particular to diversify away from U.S. dollar and U.S. Treasury risk," he said.

Local market trades represent 69% of volume

Local markets trading stood at $850 billion in the first quarter, EMTA said. This represents a 17% decrease from $1.03 trillion in the first quarter of 2007 and a 9% decline compared to $933 billion in the fourth quarter.

Trading in local markets instruments represented 69% of total reported trading, compared with a 60% share in the same quarter in 2007.

EMTA said the most frequently traded local markets instruments were from Brazil with $155 billion, Mexico with $95 billion, Hong Kong with $86 billion, Turkey with $74 billion and South Africa with $70 billion.

Sovereign eurobond trading at $236 billion

Sovereign eurobond trading stood at $236 billion in the first quarter of 2008, according to the release. This represents a 50% drop from $475 billion one year ago but a 3% increase from the $228 billion reported in the fourth quarter.

Sovereign eurobonds accounted for 19% of total reported volume, compared with 28% in the first quarter of 2007 and 17% in the fourth quarter.

Corporate eurobond trading down

EMTA said corporate eurobond trading was down 24% on a year-on-year basis, at $114 billion versus $150 billion, and down 31% on a quarter-on-quarter basis.

Corporate eurobonds accounted for 9% of survey volume, the same as in the first quarter of 2007 but down from a 12% share in the previous quarter.

The most frequently traded eurobonds were those from Brazil with $79 billion, Russia with $41 billion, Mexico with $31 billion, Argentina with $30 billion and Venezuela with $27 billion, the release stated.

In addition to local markets bonds and sovereign and corporate eurobonds, the survey included turnover in options, loans and Brady bonds. EMTA said survey participants reported $14 billion in option trades (1% of volume), $3 billion in loan assignments (less than 1% of volume) and $500 million in Brady bond transactions (also less than 1% of survey turnover).

Brazil, Mexico, Turkey lead volumes

Brazilian instruments were the most frequently traded instruments, according to survey participants, at $238 billion in turnover. This compares with $277 billion reported in the first quarter of 2007 (down 14%) and $250 billion in the fourth quarter (down 5%).

Brazil's 2040 bond remained the most frequently traded industry instrument, EMTA said, accounting for $29 billion of survey turnover. Of all survey trades, 19% included Brazilian instruments.

Mexican securities stood second at $126 billion in turnover. This compares with $407 billion in the first quarter of 2007 (down 69%) and $293 billion in the fourth quarter (down 57%), according to the release. Of all survey volumes, 10% included Mexican fixed-income products.

EMTA said Turkish instruments moved to the third most frequently traded instruments in the first quarter from sixth place in the previous quarter. Volume in Turkish debt securities stood at $96 billion, a 38% decrease on a year-on-year basis and a 29% increase from the fourth quarter.

Other frequently traded instruments were securities from Hong Kong with $90 billion, Argentina with $81 billion, South Africa with $77 billion, India with $64 billion, Russia with $53 billion, Singapore with $44 billion and the People's Republic of China with $41 billion.

EMTA (formerly the Emerging Markets Traders Association) is a not-for-profit corporation based in New York.

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