Fear of ‘Brexit’ doesn’t harm EM; Cemex climbs; Peru hosts investor call; Cheung Kong on deck

By Christine Van Dusen

Atlanta, Feb. 22 – Emerging markets assets started the week with an encouraging tone and managed to stay mostly firm, even as investors worried that Britain was increasingly likely to leave the European Union.

“Monday was a very strong day in emerging markets credit, as the risk trade was on once again,” a trader said. “Benchmark sovereigns and quasi-sovereigns were up roughly one point to 1¼ points during the day as metals and energy moved higher on an improvement in Chinese demand.”

Meanwhile, the British pound fell more in one day than it has in six years after London mayor Boris Johnson announced that he supported the idea of Britain leaving the European Union.

“Back here in London, fears of a ‘Brexit’ continue to weigh in, but apart from the sterling markets, we look to be firm,” a trader said.

Mexico-based Cemex SAB de CV, for one, moved higher on Monday after steadily moving up during the previous week, a New York-based trader said.

“The Mexican petrochemical complex has certainly joined in the run higher,” he said. “No real buying up here, and some accounts have sticker shock.”

But Petroleos Mexicanos SAB de CV was “surprisingly weaker,” another trader said. “A single dealer is pushing prices down on a few and actually selling, which suggest liquidation on an order basis.”

Otherwise, there was “very little activity and prices” for names from Mexico in the morning, he said.

Brazil bids improve

For Brazil bonds, there were a few offers and bids improved, another trader said, but not by as much as was expected.

“We have already seen buyers of the 2023s, 2025s and 2041s,” he said. “The curve is too steep.”

Brazil-based Vale SA and Gerdau SA saw some volume on Monday, another trader said.

Meanwhile, Colombia’s Grupo Aval Acciones y Valores SA broke out of its “weak rut” on Monday while Bancolombia SA’s 2022s lagged, he said.

Mexico outperforms

Later in the day, Mexico’s cash bonds were “on fire,” with the belly of the curve the outperformer, another trader said.

“Brazil was very strong as well, up around one point,” he said. “We saw U.S. real money adding corporate risk for most of the day.”

CDS tighten

Brazil’s five-year credit default swaps spreads closed at 460 bps from 473 bps, while Mexico’s moved to 194 bps from 201 bps, another trader said.

“Latin American high yield also does well on the day, with both Venezuela and Argentina higher,” he said.

Venezuela’s 2027s ended at 39.50 from 38.25, PDVSA’s 2017s finished at 46 from 45, and Argentina’s Bonar 2024s closed at 108.50 from 108.20.

“Flows today did see some sellers emerging slowly, as some opportunistic selling could have been taking place, although this did little to move markets to the left,” he said. “EM credit is benefiting from low rates, stability in commodities and equities, as well as firmer FX. If we can continue this trend, one would expect spreads to continue to tighten and cash prices to make the next leg higher.”

Officials discuss ceasefire

In other news, Syria remained in focus as government officials from the United States and Russia discussed a potential ceasefire and tried to broker some peace.

“Looking beyond geopolitical conflicts, this will be a busy week in [emerging markets], mainly dominated by the [Central Bank of Turkey] rating decision tomorrow, South Africa’s budget speech on Wednesday and Iranian elections on Friday,” a strategist said.

The Turkish central bank is expected to hold benchmark rates and current levels. In trading, the sovereign’s 2045s were up at 112 and most bonds were tighter by about 10 bps across the curve, he said.

South Africa may see downgrade

South Africa is attempting to protect its investment-grade rating, and investors are looking to the finance minister’s upcoming remarks, to see if proposed cuts and reforms will come to fruition, the strategist said.

The strategist said he remains skeptical that the sovereign can avoid a downgrade to junk by at least one of the ratings agencies.

In trading from Asia, most names were firm at the open on Monday, another trader said.

Peru ponders issuance

Peru held an investor call on Monday morning to discuss the possibility of issuing notes, a market source said.

BBVA, BNP Paribas and HSBC arranged the call for the potential Securities and Exchange Commission-registered deal.

The notes could be denominated in euros, the source said.

Deal ahead for Chinese corporate

China’s Cheung Kong (Holdings) Ltd., via OVPH Ltd., is looking to issue up to $1 billion of perpetual notes, according to a company filing.

Deutsche Bank is the sole global coordinator and – with HSBC and JPMorgan – a bookrunner for the Regulation S deal.

A roadshow is expected to commence soon.

The proceeds will be used to acquire new shares under a share subscription agreement and to enter in a swap agreement with Cheung Kong, which will then use the proceeds for general corporate purposes and to fund the redemption of the $1 billion 6 5/8% perpetual notes issued by subsidiary PHBS Ltd.

Cheung Kong is a Hong Kong-based development conglomerate.

© 2015 Prospect News.
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