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Emerging Markets Round Up

EM and HY Fixed Income news

  • A slightly weaker than expected euro-area GDP growth means that the ECB will keep its growth-supportive policy, which is positive for the European bonds.
  • •  Nordgold’s 1Q2015 results are relatively weak; next quarter figures will likely remain mixed as higher selling prices will boost revenue, while the emerging markets currencies’ appreciation should negatively impact cash costs and EBITDA.
  • • As  noted in othe Daily report from May 13, just a revision of the Polish rating outlook by Moody’s will be positively assessed by investors as they priced in the rating downgrade.
  • Chinese April data indicated that the economy has slowed last month compared to March. • Indonesia reported a trade surplus increase in April as a drop in imports outpaced that of exports.
  • • Debt-funded acquisitions by JSW Steel are credit negative in our view, especially if this funding is directed towards uncertain cash-generating opportunities.
  • As expected, Henrique Meirelles has announced his strategic plans to fix the deteriorating fiscal situation in the country. Currently, there are no details of the plan. It would be announced in the nearest future.
  • S&P’s decision to change the outlook for JBS rating may have some negative effect on the company’s bonds. At the same time, bonds could be supported by Fitch’s comments on the company’s business restructuring.

A portion of positive macroeconomic data was published in the US on Friday while Saturday’s statistics from China disappointed investors. The market reaction was mixed as positive US figures increase the possibility of a rate hike, while weak Chines data could trigger another portion of the central bank support

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MACRO :A slightly weaker than expected euro-area GDP growth means that the ECB will keep its growth-supportive policy, which is positive for the European bonds.

The euro-area economy grew slightly less than initially estimated in the first quarter. The euro region expanded 0.5% QoQ; that compares with an initial estimate of 0.6%. From a year ago, it grew 1.5%. However, expansion in Germany accelerated to 0.7%, the fastest pace in two years, beating the 0.6% estimate.

CORPORATE:

Nordgold has reported its Q1 2016 financial results. It widened the data published on April 29 in its operational results with EBITDA which expanded 28% QoQ but was lower 36% vs. 1Q2015. Total cash costs increased 7% and all-in sustaining costs grew 21% YoY. Nordgold reiterated 2016 full year production guidance of 950 – 1,010 koz

Moody’s has changed the outlook on Poland’s rating to negative from stable and affirmed its A2 rating. In its statement, the agency cited a “substantial” increase in government spending, as well as a shift toward more unpredictable policies. “A deterioration in the government’s fiscal position and/or material impairment in the investment climate following the implementation of the government’s proposed measures could generate downward pressure on the rating and lead to a downgrade. Concurrently, a protracted (or escalation in) the conflict between the government and the constitutional court that leads to substantial capital outflows could also exert downward pressure on the rating.”

Fitch has affirmed Ukraine’s rating at ‘CCC‘, citing a lack of progress on the reform programme needed to unlock donor support, which has been exacerbated by political wrangling. However, Fitch expects the new government to move ahead with the reforms required to secure the delayed IMF tranche, now likely in early 3Q16.

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MACRO

Chinese April data indicated that the economy has slowed last month compared to March. Industrial production continues to show weakness with metals and related to it sectors are acting as a major drag, although some support is coming from a surging construction sector.

The data is negative from the standpoint of market sentiment as it may again fuel speculations regarding hard landing of the Chinese economy.

Indonesia reported a trade surplus increase in April as a drop in imports outpaced that of exports. The figures reflect a weaker external demand and a marginal slowdown in internal consumption. One the positive side, the increased trade balance surplus leads to a higher supply of foreign currency exactly at a time when Indonesia is starting to experience some outflows.

CORPORATE: 

JSW Steel is planning to raise around USD450m by selling non-convertible debentures. The decision will be considered on May 18. No information on the purpose of funds raising was provided.

LATAMimages (31)

MACRO

As expected, Henrique Meirelles has announced his strategic plans to fix the deteriorating fiscal situation in the country. Currently, there are no details of the plan. It would be announced in the nearest future…

According to Meirelles, Brazil must rein in on public spending, bring down debt levels and propose realistic fiscal targets to win back investor trust.

CORPORATE

S&P’s decision to change the outlook for JBS rating may have some negative effect on the company’s bonds. At the same time, bonds could be supported by Fitch’s comments on the company’s business restructuring.

S&P has confirmed JBS’s rating at BB+ and revised the rating outlook to negative from stable.

The US beef division showed a negative EBITDA due to some challenging momentum in the sector. Poultry sector’s margin decreased too, due to some overproduction. Additionally, JBS’ cash position declined due to an unexpected BRL growth in 1Q2016.

We continue to consider BRL growth as the main risk especially in terms of a change in the country’s economic team.

Nevertheless, Fitch has already announced it could reduce JBS FX exposure.

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