399 Park Avenue, 12th Floor (at 53rd Street)
New York City
2:00 p.m. Registration
Panel No. 1 – 2:30-3:30 p.m.
Investor Perspectives on Emerging Markets Assets in 2015
David Lubin (Citi) – Moderator
Gunter Heiland (Gramercy)
Dave Rolley (Loomis Sayles)
Hari Hariharan (NWI Management)
Sara Zervos (OppenheimerFunds)
Panel No. 2 – 4:00-5:00 p.m.
Economic Outlook for the Emerging Markets in 2015
Joyce Chang (JP Morgan) – Moderator
Alberto Ades (Bank of America Merrill Lynch)
Christian Keller (Barclays)
Drausio Giacomelli (Deutsche Bank)
Will Oswald (Standard Chartered)
Attendance is complimentary for EMTA Members. The registration fee for non-members is US$1,000.
EMTA Annual Meeting: Reflections on 2014 and EM in 2015
Citi hosted EMTA’s 2014 Annual Meeting on Thursday, December 4th. The event, which attracted an audience of 300 market professionals, took place in Midtown Manhattan.
David Lubin (Citi) moderated a panel of EM speakers. With oil pricing dominating the headlines, he questioned his speakers if 2015 would be the year of “sell all commodity exporters?” Gunter Heiland (Gramercy) viewed the oil price decrease in the context of a series of events that would bolster global growth. “The Fed was first in pushing growth; then the EU and Japan chimed in; then this might be the final push,” he stated. Oppenheimer’s Sara Zervos saw falling commodities benefiting importers on both the inflation and growth fronts.
Speakers were not convinced that the threat of deflation in China was a serious threat to the asset class. Hari Hariharan (NWI Investments), borrowing from Stan Fischer, differentiated between “good and bad deflation,” and argued that a clear, across-the-board commodity price drop could be good for Chinese GDP. “I’m not worried about China,” he concluded, and underscoring that he had made the same comment in 2013. On the other hand, Zervos signaled that, if Beijing were to react to a drop in exports by allowing the RMB to fall to 7 per dollar, “significant repercussions would occur; you are already seeing the Asian bloc reacting to JPY weakness,” she stated.
Speakers concurred that Russia was the EM commodity-exporter most likely to be downgraded by credit ratings agencies, although they differed in assessing prospects for other ratings drops. Dave Rolley (Loomis Sayles) speculated that Brazil would also be vulnerable, while Heiland and Hariharan saw the shoe dropping next on South Africa.
Ukraine and Venezuela would not dent the appetite of capital inflows into EM, panelists concluded. “Crossover investors are not involved in those credits at all,” stated Rolley, while acknowledging that that it was “more a difficulty for those who have those credits in your benchmark.”
On the perennial topic of US rate hikes, “the market has cried wolf so many times…I think it is now overdone as a grossly over-blown fear,” according to Hariharan.
Joyce Chang (JPMorgan) moderated the event’s sell-side panel, taking her seat at the EMTA Annual meeting for the 19th consecutive year. Chang reviewed 2014 in the EM marketplace, observing that “few investors were positioned for the macro directional calls that actually played out—lower UST yields, commodity prices falling dramatically and EM FX weakness….as well as Russia invading Ukraine.” Chang also highlighted that that the gap between DM and EM growth was at its narrowest in ten years (2.3% vs 4%, respectively).
The panel discussed 2015 macro-economic variables. Bank of America Merrill Lynch’s Alberto Ades predicted 4.5% EM growth in 2015, while
Barclay’s Christian Keller revealed a more optimistic 4.6/4.7% forecast. Most speakers expected US outperformance.
Panelists held a variety of views on dollar strength, with Ades believing the rally was reaching its end (although he viewed most LatAm currencies as overvalued), while Keller offered the most bullish rate on $/Euro at 1.07 by year end and an assessment that the “RUB was not yet in an ‘overshoot’ and we believe it would go weaker.” Drausio Giacomelli (Deutsche Bank) forecast a 2.75 BRL/$ rate in 2015. Ades expected the first rate hike in September, followed by a pattern of hikes at every other FOMC meeting.
On China, Standard Chartered’s Will Oswald argued that a distinction existed between headline and underlying growth, “and some information suggests slower-than-reported growth in China.” He added that Chinese growth would not come from the export sector but rather from areas such as domestic demand and the property sector. Keller forecast 7% Chinese growth.
Chang invited commentary on high-beta credits. Giacomelli (Deutsche Bank) anticipated that Ukraine would restructure its debt in 2015, and estimated that Venezuelan recovery value would be in the 40s. Ades admitted to holding a “wimpy” view on Argentina, Ukraine and Venezuela –i.e. Ukraine and Venezuela would avoid defaulting in 2015, while no substantial progress would be made to cure Argentina’s default under the Kirchner administration. Keller would overweight Venezuela on a technical basis, underscoring the investor’s challenge of comparing market prices to potential recovery value.
Most sell-side speakers agreed with the investor panel that Russia was the most vulnerable major EM credit at risk of losing its investment-grade rating. “A couple of months ago we would have also worried about Brazil, South Africa and Turkey as well, but the situation has become generally more benign,” stated Ades. Chang added that her own firm was underweight Ukraine and neutral on Argentina and Venezuela.