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Emerging Markets 6th June

Fixed Income Emerging Markets News

Summary

  • The continued international support for the Ukrainian government may increase demand for the sovereign bonds.
  • We expect a neutral market reaction to the Arcelik’s rating affirmation
  • The additional USD 125 mln of CAPEX shouldn’t significantly impact Nord Gold’s financial metrics due its high cash reserves of USD 365 mln as of 31 March 2016 and the positive cash flow.
  •  Despite some positive trends, Russian Standard Bank showed a net loss in 1Q2016, which means the bank still hasn’t resolved its problems.
  •  Comments from the major rating agencies on their decision to place China’s rating outlook to negative will have a limited effect on the capital market.
  •  Not much value in the Japanese bond market due to current prices.
  • The fact that the Brazilian government will try to sell stakes in the main state-owned companies only in 2017 is neutral for the market.
  •  Investors should be prepared for further pressure on the Mexican national currency due to increasing current account deficit and the difficulties in the state-owned Pemex.

 

MArket Drivers:

Weak US jobs data should support demand for the risky assets as it is unlikely that the Fed will decide to tighten its policy at the June meeting after the payrolls numbers. On the other side, concerns over the British referendum may decrease the investor risk appetite.

U.S. jobs data published on Friday crushed speculation the Federal Reserve will raise interest rates by July – the odds of the policy tightening halved to 27% in the futures market. As reported, the US payrolls rose by only 38,000 in May after a downwardly revised 123,000 in April

The pound slumped to a three-week low after polls showed more Britons favor exiting the European Union, reviving concern over the June 23 referendum results. A YouGov poll for ITV found 45% would choose ‘Leave,’ compared with 41% picking ‘Remain.’ A separate survey by TNS showed 43% for ‘Leave’ and 41 percent for ‘Remain.’

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MACRO The continued international support for the Ukrainian government may increase demand for the sovereign bonds.

As reported, the U.S. agreed to hand Ukraine its third USD 1 billion loan guarantee, signaling continued international support for the nation’s new government. President Petro Poroshenko said in a statement that he’s sure Friday’s pact with the U.S. will be followed by agreements with the IMF and the European Union on further aid.

CORPORATE   Fitch has affirmed Arcelik’s A.S. ratings at ‘BB+‘ and Arcelik’s senior unsecured rating at BB+. The outlooks are stable. The agency noted the main positive trends including the improved leverage metrics, unwinding of working capital needs, strong growth in the international markets, the improved debt maturity profile and diversification

Nord Gold N.V. announced it has started construction on its low-cost, large-scale Gross mine in Yakutia, Russia.Additional USD 125 mln of CAPEX  to be invested.First gold is expected to be poured in Q1 2018. Gross is expected to produce approximately 230 koz of gold per year, at full production, for 17 years. In 2016, Nordgold will invest approximately USD 125 million in construction at Gross. The whole project will require approximately USD 250 million of total capital investment during construction.

Despite some positive trends, Russian Standard Bank showed a net loss in 1Q2016, which means the bank still hasn’t resolved its problems.

As reported, Russian Standard Bank’s 1Q2016 net loss narrowed to RUB 2.31 bln from RUB 13.6 bln in 1Q 2015. The net interest income rose to RUB 6.31 bln rubles from RUB 2.21 bln YoY, loan loss provisioning fell to RUB 5.98 bln vs RUB 16.6 bln in 1Q2015.

 

ASIAasia 7

REGION SUMMARY   The regional bonds appreciated due to Fed’s hike probability decline. China’s economy health is one of the key market drivers.

MACRO Comments from the major rating agencies on their decision to place China’s rating outlook to negative will have a limited effect on the capital market.

Moody’s and S&P commented on their latest decision to place China on the negative outlook. According to both agencies, the country’s off-balance funding increases uncertainties. Slower than expected economic rebalancing and growing financial risks were the key triggers for the rating action. We don’t expect any negative effect from this announcement.

There´s not too much value in the Japanese bond market due to current prices.

Japan’s Service PMI was 50.4 in May, while composite PMI was 49.2. The numbers were slightly better than in the previous month. At the same time, risks of a recession are still high. Considering the country’s latest economic dynamics, we asses the Japanese market as expensive. We don’t see much value here.

LATAMimages (31)

REGION SUMMARY The Latin American bond market continues to grow due to the latest positive announcement from Brazil and the decreased probability of an interest rate hike in the US.

MACRO The fact that the Brazilian policy makers will try to sell their stakes in the main state-owned companies only in 2017 is neutral for the market. The Brazilian president Michel Temer announced that the country would focus on infrastructure concessions sale as a measure to boost investor confidence and to improve the political environment. Only after that the policy makers will start to sell stakes in the state-owned giants like major Brazilian banks or Petrobras. It is projected to occur in 2017. Assets sale is a measure to reduce the country’s growing debt. This announcement is relatively neutral for the market.

Investors should be prepared for further pressure on the Mexican national currency due to increasing current account deficit and the difficulties in the state-owned Pemex.

The Mexican currency is under pressure as the country has a negative trade balance and a current account deficit that amounted to 2.97% of GDP in the 1Q2016. Such a dynamics is the result of a substantial oil price decline, while oil is one of the key commodities for the country. Additionally, some negative currency pressure followed as Pemex faced substantial operating difficulties in a low-oil-price environment. Investors should be prepared for further pressure on MXN.

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