A bond trader in London is still marvelling at the market’s willingness to snap up a Eurobond from Hungary, calling it a country with “a policy mix so unorthodox even Aunty Christine won’t lend to them”. But Hungary’s probable glee at bypassing the IMF and “Aunty Christine” with $3.25 billion in two bonds that were almost four times oversubscribed, is probably short-sighted.
Hungary needs to raise the equivalent of $23.4 billion this year to repay maturing debt. The bond placement will enable Hungary to easily meet the hard currency component of this, and it has been enormously successful in luring buyers to domestic debt markets. Such has been the demand for Hungarian bonds in recent months that foreigners’ holdings of forint-denominated government debt are at a record high of over 45 percent.
LONDON (Reuters) – A $2 trillion economy, a seat at the top table of world powers and a stock market that trades at valuations cheaper than Pakistan – G20 host Russia is still struggling to gain the trust of international capital.
Despite years of reform pledges, several privatisations and an apparent tick up in the global growth outlook, Russian shares trade only around five times expected earnings for the coming year, approaching depths plumbed during the 2008 market crash.
LONDON, Feb 13 (Reuters) – A $2 trillion economy, a seat at
the top table of world powers and a stock market that trades at
valuations cheaper than Pakistan – G20 host Russia is still
struggling to gain the trust of international capital.
Despite years of reform pledges, several privatisations and
an apparent tick up in the global growth outlook, Russian shares
trade only around five times expected earnings for the coming
year, approaching depths plumbed during the 2008 market crash.
The Year of the Snake is considered one of the less auspicious in the 12-year Chinese zodiac cycle. And 2013 is the year of the Black Water Snake, which comes around once every 60 years and is seen as the least fortuitous. How China’s stock markets turn out after years of poor performance remains to be seen but the snake is providing banks and asset managers with plenty of food for thought. Many of them have been gazing into the crystal ball to see what 2013 may hold for Chinese markets.
Fidelity Worldwide investments highlights the ‘Snakes and Ladders’ that could influence Chinese equities this year. (They have a great accompanying illustration)
As we wrote here last week, Russian bond markets are bracing for a flood of foreign capital. But there appears to be a surprising lack of interest in Russian equities.
Russia’s stock market trades on average at 5 times forward earnings, less than half the valuation for broader emerging markets. That’s cheaper than unstable countries such as Pakistan or those in dire economic straits such as Greece. But here’s the rub. Look within the market and here are some of the most expensive companies in emerging markets — mostly consumer-facing names. Retailers such as Dixy and Magnit and internet provider Yandex trade at up to 25 times forward earnings. These compare to some of the turbo-charged valuations in typically expensive markets such as India.
The recent, steady upward creep in U.S. Treasury yields is starting to have an effect on appetite for high-yield credit, investors’ favourite for over a year.
Emerging dollar bond funds have suffered capital outflows for the first time since June 2012, waving goodbye to around $300 million in the week to Feb 6, according to EPFR Global, the Boston-based fund tracker. Global high-yield bond funds saw net outflows of $1.33 billion, and according to another set of data from JPMorgan, emerging market hard currency ETFs (exchange traded funds) saw net outflows of $550 million. JPMorgan notes:
Russian debt finally became Euroclearable today.
What that means is foreign investors buying Russian domestic rouble bonds will be able to process them through Belgian clearing house Euroclear, which transfers securities from the seller’s securities account to the securities account of the buyer, while transferring cash from the account of the buyer to the account of the seller. Euroclear’s links with correspondent banks in more than 40 countries means buying Russian bonds suddenly becomes easier.And safer too in theory because the title to the security receives asset protection under Belgian law. That should bring a massive torrent of cash into the OFZs, as Russian rouble government bonds are known.
In a wide-ranging note entitled “License to Clear” sent yesterday, Barclays reckons previous predictions of some $20 billion in inflows from overseas to OFZ could be understated — it now estimates that $25 to $40 billion could flow into Russian OFZs during 2013-2o14. Around $9 billion already came last year ahead of the actual move, Barclays analysts say, but more conservative asset managers will have waited for the Euroclear signal before actually committing cash.
The Czech central bank surprised many this week after its policy meeting. Widely expected to announce the timing and extent of FX market interventions, Governor Miroslav Singer not only failed to do so, he effectively signalled that intervention was no longer on the cards — at least in the short term In his words, looser monetary conditions were now “less urgent”.
What changed Singer’s mind? After all, data just hours earlier showed Czech industrial production plunging 12 percent year-on-year in December. The economy has not grown since mid-2011 and is likely to have contracted by more than 1 percent last year. Singer in fact predicts a second full year of recession. But some slightly upbeat-looking forward indicators could be cause for cheer. According to William Jackson at Capital Economics:
The boom in emerging corporate debt is an ongoing theme that we have discussed often in the past, here on Global Investing as well as on the Reuters news wire. Many of us will therefore recall that outstanding debt volumes from emerging market companies crossed the $1 trillion milestone last October. This year could be shaping up to be another good one.
January was a month of record issuance for corporates, yielding $51 billion or more than double last January’s levels and after sales of $329 billion in the whole of 2012. (Some of this buoyancy is down to Asian firms rushing to get their fundraising done before the Chinese New Year starts this weekend). What’s more, despite all the new issuance, spreads on JPMorgan’s CEMBI corporate bond index tightened 21 basis points over Treasuries.
Emerging bond issuance and inflows have had a strong start to the year but can it last?
Data from JPMorgan shows that emerging market sovereigns sold hard currency bonds worth $9.6 billion last month while companies raised $51.2 billion (that compares with Jan 2012 issuance levels of $17.5 billion for sovereigns and $23.9 billion for corporates). Similarly, inflows into EM debt were well over $10 billion last month, very probably topping the previous monthly record, according to JPM.