Emerging markets bounce back late; volume still a trickle; new Lithuania sovereign gains

By Aaron Hochman-Zimmerman

New York, June 18 - Emerging markets looked as though the week's correction had come to an end on Thursday.

A weak start gave way to a bounce which evened and later tightened spreads.

Still, the market struggled to find motivation to move in a particular direction after a weak session on Wednesday and a weak overnight, a trader said.

During the early part of Thursday's session, spreads "widened out a little across the board," he said, although "stuff is getting slightly better bid into the close."

More people are realizing things went "quite a bit too far," a strategist said.

On the primary side, "you hear about all the money on the sidelines," but "why aren't they issuing?" he asked.

Many issuers seem to have financing needs, but they must be "deterred by the spreads," he said.

From the major markets, volatility slipped close to the psychologically significant 30.00 barrier, but stopped short, losing only 1.51 to end the day at 30.03, according to the VIX index. The index is a commonly used measure of market volatility.

As a sector, emerging markets managed to bounce tighter by 12 basis points. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 11 bps with a spread of 450 bps.

The diversified index has a less strict liquidity rule for inclusion.

Quiet emerging Europe mixed

There was "not an awful lot to report" in emerging Europe, a trader said, as it seemed that attention was more attracted to sport than the market.

Lithuania's new 9 3/8% bonds, which had priced "under the radar" on Monday night, performed well, the trader said.

The bonds priced at 99.52 to yield 9½%.

The issue was spotted trading at 101½ bid, 102 offered or about 20 bps tighter in light volumes on Thursday.

Few in the market seemed to realize the deal had priced, the trader said.

"I have no idea who bought it," he added.

The emerging European benchmarks were mixed.

Russia's five-year CDS was seen wider by 2 bps at 317 bps bid, 323 bps offered.

Turkey's five-year CDS was just "slightly tighter," he said, but for both countries "volumes were pretty light."

The market was "struggling for inspiration" and "very much tracking, as we have for most of the week, the equity markets," he said.

Meanwhile, Belarus agreed to resume shipments of powdered milk to Russia after an agreement Wednesday following the Russian agriculture ministry's decision to deem the products safe, reports said.

The two countries have been sparring over loan payments, the diplomatic status of Abkhazia and South Ossetia in Georgia and other issues, but a new conflict over a $231 million gas debt seemed poised to reopen the wound.

As soon as the countries announced the new arrangement, which is expected to continue the $1 billion dairy trade, Russia's OAO Gazprom demanded that Minsk settle its debt.

LatAm halts skid

Latin America saw little movement in cash terms on Thursday, but mostly managed to halt the skid investors watched throughout the week.

In Argentina, farmers' protests may resume after the June 28 midterm elections, said Small Farmers' Association president Eduardo Buzzi, according to the Buenos Aires Herald.

The farmers are still not satisfied with the level of export taxes they are obliged to pay and also feel the government should offer more aid to drought-affected areas.

In trading the 8.28% Argentine discount bonds due 2033 were unchanged at 45 bid, 47 offered.

Fellow high-beta Venezuela saw its government bonds due 2027 inch up by 1/8 point to 68 5/8 bid, 69¾ offered.

Meanwhile, Brazil's national soccer club easily dispatched the U.S. side 3-0 as the 11% Brazilian sovereigns due 2040 were quoted at 126¼ bid, 126½ offered.

Asia steadies

In Asia, the best characterization was that "it stopped crapping out," a trader said.

"It was very, very weak yesterday," he said, "there was a lot of selling, especially in [South] Korea and sovereign issues."

The market has "now stabilized at these lower levels," he said, but from here out "it's going to depend on what happens to equities."

The firming occurred as investors noted "things aren't as bad as they were expecting," the trader said, "but you need more than that."

More "signs of encouragement" recently helped stave off a longer correction, he said.

As things settled down, Malaysia's range of corporate issuers outperformed Korea's and on the way down "Indonesia marginally outperformed the Philippines," he said.

The Philippine sovereign bonds due 2030 were quoted at 120 bid, 121 offered Thursday, while the Indonesian government bonds due 2019 were seen at 123 bid, 124 offered.

Elsewhere, Pakistan's bonds due 2017 remained at a comfortable 63 bid, 66 offered.

World Bank ups China estimate

Also in Asia, China's economy is now expected to grow by 7.2% in 2009, up from a projection of 6.5%, according to the World Bank.

The four trillion yuan stimulus package encouraged bank lending and "government-influenced investment has soared," the World Bank's statement said. However the government alone cannot solve every problem over the long-term.

Market investments have lagged, the bank said, but real estate is beginning to show signs of a turnaround.

"Growth in China should remain respectable this year and next, although it is too early to say a robust sustained recovery is on the way," said Ardo Hansson, lead economist for China.

China needs to cultivate its domestic demand in order to rely less on a damaged world economy which will likely show less interest in its exports.

© 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.