Our strategy team at Citi has been bearish on EM fixed income and FX for many quarters, on the back of the reversal of international capital that was triggered by a G3 attempt at decoupling from EM growth.
In 2013, the markets recognised the risk of growth divergence between the G3 (the US being the major driver, of course) and EMs. That led the US dollar into a 22 per cent appreciation on a trade-weighted basis from April 2013 to the end of 2015, and a marked deceleration in EM portfolio flows (most recently an estimated outflow of $240bn in 2015). Read more
Recent political and economic developments have done little to make the case for investing in Brazil. A gargantuan corruption scandal involving Petrobras, the state-controlled oil company, has ensnared politicians and CEOs alike, ravaging confidence and investment in an economy already reeling from low commodity prices.
The economy is contracting at a 4.5 per cent annual rate, twice that seen during the global financial crisis. Unemployment has leapt to 7.5 per cent and inflation has surpassed 10 per cent. President Dilma Rousseff’s popularity rating has plummeted to 12 per cent, barely a year after a narrow re-election victory. Read more
By Michael Hasenstab of Franklin Templeton
A key dynamic that we have observed during 2013 and 2014 is periods of short-term panic and contagion followed by longer periods of differentiation. These periods of volatility are often characterized by an inability to understand differentiation between countries; however, they offer unique opportunities for truly unconstrained global investors to generate strong returns.
We are definitely not strangers to contrarian trades – our views are anchored by a combination of fundamental bottom-up research, deep country analysis and macro modelling which allows us to identify these high-conviction investment opportunities. Read more
If investing is all about value creation, the latest batch of figures from Brazil’s central bank make for sobering reading. They show the rich returns you can make when investing in Brazil goes right – and the huge losses that result when it goes wrong. Over the past three years, foreign direct investors and buyers of Brazilian portfolio assets have suffered value destruction on a colossal scale.
An analysis of central bank figures by beyondbrics shows that ,taken together, flows of foreign direct investment to Brazil and foreign investment in Brazilian portfolio assets were worth more than $260bn between January 2011 and November 2013. Over the same period, in spite of those inflows, the value of such assets held by foreigners fell from $1,351bn to $1,327bn, a loss of $24bn, implying value destruction of more than $284bn in less than three years. Read more
By Steffen Reichold of Stone Harbor
Since May, global fixed income markets have experienced large sell-offs. The immediate trigger was a sharp increase in US Treasury yields as the Federal Reserve signalled a willingness to taper its quantitative easing programme. But the sell-off also coincided with growing concern over slower growth in emerging markets over the past 24 months, exacerbated, among others factors, by fears about widening current account deficits. This negative sentiment, we think, is overblown. Read more
Bond trading in Nigeria is largely the preserve of big investors dealing over the counter, but the Nigerian Stock Exchange on Friday opened a new trading platform which it says will make dealing in fixed income “as easy as trading in shares” for retail investors. Read more
When the US sneezes, Latin America catches a cold – or so the saying goes.
But you wouldn’t know that looking at the LatAm debt market. Bimbo, the the world’s largest breadmaker, became the latest to join the LatAm 2012 bond bonanza with a 10-year debt sale. Read more
The thrill of investing in Latin America just isn’t what it used to be.
Brazil has shown the world, once again, that it really doesn’t deserve to be called a ‘high-risk’ market. The country’s Treasury announced on Friday that it had sold $1bn of 30-year bonds after reopening a bond first sold in 2009. Read more
Emerging market debt was one of the last shoes to drop when Europe’s simmering sovereign debt crisis once again turned into a full-blown panic this summer, but when it finally did, it landed with a thud.
The yield of JPMorgan’s benchmark emerging markets debt indices shot up from 5.46 per cent in early August to a one-year high of 6.39 per cent at the start of this month, and corporate issuance in September shrivelled to the lowest since at least January 2010.
However, emerging market bonds have rallied markedly this month, and issuance is once again picking up, with a flurry of deals on Wednesday. Read more
Chile is poised to issue $1.5bn in debt by reopening a global peso-denominated bond due in 2020 for the equivalent of $350m and issuing $1bn in new 10-year bonds, a new benchmark in dollars, according to analysts. Read more
Leading international banks have piled into emerging markets in recent years, dispatching thousands of their best and brightest to recondite but promising parts of the global financial system to counter the glum outlook for domestic western markets.
While hardly a goldmine – yet, at least – emerging markets are certainly starting to contribute to the bottom line of many banks. Although the overall volume of M&A deals involving an emerging market company only rose 4 per cent in the first half of the year, Thomson Reuters estimates that fees rose almost a quarter to $3.9bn. So who is coining it? Read more
Institutional investors looking for emerging markets with old fashioned EM appeal are becoming increasingly attracted to the charms of Argentina, according to a report in Monday’s FTfm.
This is even though that old fashioned EM appeal of high returns tended to be coupled with a fair amount of risk. Read more
Russian corporate borrowers are taking the Eurobond market by storm. Since the start of the month, Russian companies have raised close to $3.5bn on the international debt market, as bond holders look to Russia for higher yields and exposure to rising commodity prices.
Steel producer Evraz and Alfa Bank, Russia’s largest private lender, have raised a collective $1.85bn this week, bringing this month’s total to nearly $4.5bn. Moreover, Russian companies are now able to borrow for longer. Read more