EMTA CORPORATE BOND FORUM
Tuesday, June 3, 2014
Sponsored by BNP Paribas
10 Harewood Avenue
London NW1 6AA
Topics will include:
3:45 p.m. Registration
4:00 p.m. Panel Discussion
Current Prospects in the EM Corporate Bond Market
David Spegel (BNP Paribas) – Moderator
Siddharth Dahiya (Aberdeen Asset Management)
Kay Hope (Bank of America Merrill Lynch)
Sonya Dilova (F&C Investments)
Maxim Miller (JPMorgan)
5:00 p.m. Cocktail Reception
Attendance is complimentary for EMTA Members. The registration fee for non-members is US$695.
EMTA Panel in London Details Risks to EM Corporate Bond Market
BNP Paribas hosted EMTA’s Corporate Bond Forum in London on Tuesday, June 3, 2014. Over 125 market participants attended. Speakers were upbeat in their assessment of the EM corporate market, despite many believing that recent performance had made the search for value more difficult.
Moderator David Spegel (BNP Paribas) in opening remarks detailed recent performance in the corporate marketplace, concluding that “we don’t seem to have reached the end of the fixed income rally.” He noted that spreads have tightened compared to last year, while EM corporate volatility was low. Spegel presented a list of market risks that included rising default rates, geopolitical concerns and ECB policy inaction, and invited the panel to discuss what additional issues they were following.
For Sonya Dilova (F&C Investments), commodity pricing, US Treasury movement, shadow banking (“and not only in China”), regulatory issues (“not only Basel III but also concerns, such as mining sector regulations in Chile”) were among the factors she was monitoring. Aberdeen Asset Management’s Siddharth Dahiya suggested that there could be some degree of market complacency, and remained on guard against any potential outflow of crossover funds.
JPMorgan’s Maxim Miller further specified that politics would remain the second biggest factor after the US rates, while noting that markets tend to forget about political risks quickly “in the absence of news.” Finally, Bank of America Merrill Lynch’s Kay Hope highlighted US Treasury yields as the main market risk, with her firm predicting that the 10-year bond would yield 3.5% by year-end. While an “unfortunate incident” in Ukraine could not be ruled out, she noted that the house view was that the worst of the recent crisis had likely occurred; and rising MENA real estate prices were “something to keep an eye on, although we don’t expect a major event in the 2H,” she stated.
Panelists discussed the recent rally in Russian corporates following a de-escalation of tensions since the May 25 elections. “People are just pricing in the fact that Russian fundamentals have not changed,” Miller asserted. Several speakers expressed skepticism to the theory that, earlier in the 2Q, outflows from Russia had gone into Latin America and Turkey, and now were a source of potential vulnerability. Dahiya suggested that Latin America was, in fact, at greater risk to US crossover account flows, and that its performance was tied to its longer duration.
Dilova believed that Turkish corporates offered value. “At top tier firms, management has proven they are keeping their eye on the ball, and there are opportunities, though there might be some transparency issues with smaller Turkish banks,” she stated. Hope acknowledged she was “comfortable” with Turkish banks at current levels. “There is some supply risk, but the first quarter wasn’t as bad as had been expected,” she stated. In contrast, Miller praised the Central Bank for its successful re-tightening operation, but this was not enough to address his fundamental concerns. He recommended only short-term tactical trades in Turkish corporates.
Dahiya largely brushed off concerns on the China property sector. “Prices have risen dramatically, but so has income in China,” he argued. Investors were adequately compensated for the risk, and, while there might be some “big headlines,” he didn’t expect large defaults in the sector. Miller added that his firm also maintained a bullish view, while Dilova offered an opposing view; “I’m very happy to avoid that sector.”
The panel concluded with investor recommendations. Dahiya generally viewed EM corporates as expensive, although Nigerian banks such as Zenith were an appealing investment, while he would avoid the Brazilian sugar sector. Hope identified Vimplecom as a laggard in the recent Russian bond rally for those still wishing to ride the wave. She was less enthusiastic on Ukrainian corporate debt.
Dilova’s picks included Rosneft, Petrobras, Morocco’s OCP and UAE banks, while avoiding the pulp and paper sector. Miller also saw value in Middle East bonds such as MAF perpetuals, Emaar and Dubai Holding, while expressing concerns about the viability of African Bank’s business model. Spegel’s own list included Sberbank versus VTB, Russian Agricultural Bank, and several Chinese property bonds.
EMTA’s Corporate Bond Forum in New York will also be hosted by BNP Paribas, and is set for Tuesday, October 1, 2014.