Morning Commentary: EM primary market stays shuttered after Trump win; Mexican corporates eyed

By Christine Van Dusen

Atlanta, Nov. 15 – Deal flow remained stunted on Wednesday as emerging markets issuers and investors awaited clear signals on how Donald Trump’s presidency will affect the asset class.

“Market volatility continues to be high as expectations are growing that Trump’s future policy will influence inflation in the U.S. and global trade relations,” according to a report from Schildershoven Finance BV. “Emerging countries’ bond market correction continues to accelerate.”

Still, oil prices managed to rebound on Wednesday after members of OPEC said they were working toward a deal to cut production.

“Nonetheless, there are a lot of uncertainties,” the report said. This group is “producing a record amount of oil and some countries are accelerating production.”

Russia’s bonds, which got a boost after Trump’s win, were eyed on Wednesday after a criminal case against the economy minister was opened, alleging he took a $2 million bribe to approve the sale of the government’s 50% stake in Bashneft PJSC.

Economy Minister Alexei Ulyukayev “is the highest-ranking Russian official to face criminal charges while still at his post,” the report said.

The market was also keeping watch over Mexico, which has seen its bonds struggle as a result of Trump’s campaign rhetoric about trade deals. On Wednesday, Fitch Ratings released a report that said Trump’s idea of canceling or renegotiating Nafta could pose fairly significant risk to Mexican corporate bond issuers.

“Mexican industrial activity is strongly linked to the U.S. economy, given the countries' geographic proximity. Mexico has functioned as a natural industrial hub to the U.S. under the Nafta framework,” said Jay Djemal of Fitch. “Given this link, protectionist policies – if enacted by U.S. authorities – and FX risk could impact some Mexican corporate credit profiles. However, other companies might benefit from some of the proposed policies, such as increased infrastructure spending.”

Movil, Famsa could suffer

Companies like America Movil SAB de CV, Grupo Famsa and Grupo Televisa SAB stand to fare the worst, the Fitch report said.

“Over half of the 42 Mexican corporates with debt issuances in the international capital markets rated by Fitch are only moderately exposed to FX risk due to their position as exporters and large portions of their debt being denominated in dollars,” the Fitch report said. “They also enjoy mitigations to any potential negative credit impact.”

Cemex, Becle risk limited

Cemex SAB de CV, for example, would fare better because it has diversified businesses.

“Only approximately 1/5 of Mexican corporates with international ratings are deemed to be unaffected by any potential changes to Nafta or other protectionist measures enacted by the U.S.,” the Fitch report said.

On that list are companies like Becle SA de CV, with about 60% of its sales generated outside of Mexico, and Femsa, which has “sufficient dollar debt hedging in place,” the report said.

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