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Emerging Markets Update


  • The escalation of the conflict between Armenia and Azerbaijan will negatively affect the Eurobonds of both nations as investors may flee from the issues in fear of further worsening of the situation.
  • The investigation results from the International Consortium of Investigative Journalists can´t rule out that the information could hurt the interest of foreign investors in the Russian markets.
  • • New difficulties in Russia’s Eurobond placement may push the government to focus on the domestic market:
  • Reuters reported that Euroclear and Clearstream haven’t yet agreed on handling settlement of Russia’s planned Eurobonds as they’re concerned they might violate the U.S. and European sanctions against Russia. Moody’s sees limited effect from any delay in Russian Eurobond placement as Russia’s planned USD 3 bln Eurobond sale represents ~6% of Moody’s projected 3.1 trillion-ruble federal budget deficit for 2016.
  • We expect a higher consumer confidence in Indonesia to translate into a stronger consumption towards 2H16.
  • Chinese banks’ plan for conversion of non-performing loans into equity looks like more an accounting gimmick rather than a solution.The amount of the planned conversion will cover approximately 80% of the official NPL figure:
  • the approach looks more like an accounting gimmick rather than a solution: there will be no non-performing loans on the book but the bank will still own the very same non-performing, non-core assets. Value of conversion remains a question mark.
  • Brazilian economic data is weak in general. The only way to reverse the situation in the country is to implement a fiscal shift. We don’t expect it to occur before the impeachment hearings are over.
  • Investors shouldn’t expect any substantial market reaction to the latest Moody’s rating decision on Pemex:
  • The Mexican government announced its plans to reduce spending next year in order to meet its zero deficit target. After decreasing the 2016 year budget by USD 7.6 bln, the policy makers now plan to reduce 2017 spending by USD 10.0 bln. Such a step followed the Moody’s decision to change the country’s outlook to negative from stable. The agency’s decision came as it expected the government would need to substantially support the national oil producers that could increase the country’s debt as a percentage of GDP.
  • Pemex credit rating was downgraded by Moody’s from Baa1 to Baa3 (Neg). The company’s baseline credit assessment was downgraded to b3 from ba3. The main drivers for Moody’s decision were weak industry fundamentals, expectations of the company’s oil production decline by 5% annually, and the limited probability of Pemex’s return to profitability in current environment.
  • Moody’s added the company had a high leverage that amounted close to 5.2x at the end of 2015 and was expected to grow further. Pemex liquidity is tight, but there is a very high probability the Mexican government will support the company

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