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EMTA Forum in Zurich

Tuesday, June 10, 2014 

Hosted by Market Axess


Park Hyatt
Beethoven-Strasse 21
Zurich, Switzerland 

Topics will include: 

3:30 p.m. Registration 

4:00 p.m. Panel Discussion
Prospects for the Emerging Markets

Christian Keller (Barclays) – Moderator
John H. Welch (CIBC)
Evgeny Gavrilenkov (Sberbank)
Costa Vayenas (UBS)
Jean-Dominique Bütikofer 

5:00 p.m. Cocktail Reception 


Additional support provided by Barclays, CIBC and Sberbank. 

Registration fee for EMTA Members: US$75 / US$695 for non-members. 


EMTA Zurich Forum Explores Geopolitical Risk and Market High-Yielders 

Members of the Swiss EM investment community convened on Tuesday, June 10, 2014 at EMTA’s first Forum in Zurich.   MarketAxess sponsored the event, with additional support provided by Barclays, CIBC and Sberbank.  Attendees listened as market experts reviewed prospects for the EM marketplace. 

Just over a year ago, then-US FOMC Chair Ben Bernanke had shocked the markets by signaling an end to the US’ loose monetary policy, and EM assets had sold off dramatically, noted moderator Christian Keller of Barclays in a general overview.  “However, no one would have guessed where we would end up now,” he stated, pointing out the post Bernanke-speech recovery, subsequent Chinese slowdown concerns, Russia’s annexation of Crimea, and the more recent market upturn and resumed capital inflows.  Keller asked speakers if a return to optimism was warranted, or if panelists feared an abrupt end to market confidence. 

UBS’ Costa Vayenas predicted US 10 year Treasury bond yields would rise to 3.1% within six months, and the EMBI and CEMBI indices would drop slightly.  However, he viewed EM equities as having the potential to rise up to 3% in the next six months.  Jean-Dominique Butikofer also saw reasons for potential gains in EM.  He pointed out that, while recent asset class inflows have returned to credit markets, local currency bonds had not benefited.  Thus, he argued, a rally in local bond debt was possible in the 3Q.  CIBC’s John Welch added his long-term optimism on EM instruments, while urging policy makers not to abandon reform efforts. 

Moving on, Keller observed that the “reduction in political risk [in Ukraine] has been critical in EM performance lately, as investors saw tail risks being taken out.”  He asked Sberbank’s Evgeny Gavrilenkov if he agreed with that view point. 

“In fact, geopolitically tensions are rising,” countered Gavrilenkov, who listed disputes between China and Vietnam, as well as between China and the Philippines, as being serious concerns, despite decreased alarm over the Russia-Ukraine situation.  Gavrilenkov added that Russia’s economic slowdown of late was a result of domestic policy errors, and not due to sanctions or capital leaving the country.  He expected reduced Russian corporate issuance compared to the past, explaining that some of this was due to previous borrowings being used to purchase foreign assets. 

Keller also requested panelists’ thoughts on the market’s high-yielders.  Prior to subsequent court rulings, Welch opined that it was in the interest of both sides of the Argentine legal case to drag the case out past December, when the RUFO clause limiting Buenos Aires’ negotiating ability expires.  Welch recognized that a decision by the US Supreme Court could lead to a technical default, although he outlined a potential scenario where the Republic would miss coupon payments and then reach an agreement with holdouts upon the clause’s expiration.  Welch believed that the drama was slowly approaching the end-game; “in any case, Argentina will be back to the market next year,” he predicted. 

Because it was “suicidal and irrational” for Venezuela not to pay bondholders, Welch expected continued debt service by Caracas, despite the deteriorating economy.  He viewed a “muddle through scenario followed by a recall vote on President Maduro” as his base case, with a military coup having a low probability. 

Gavrilenokov’s expressed concern on Ukraine’s future.  He expected economic problems to persist, and that the government would be unable to honor all of the agreements it has made to tighten expenditures. 

The panel concluded with a discussion of where investors should focus.  Vayenas voiced a concern that expectations of the new Indian government were so high that actions could disappoint, so investors should monitor developments there.  Butikofer noted that after years of generally improving credit ratings, any large EM sovereign downgrade could spook investors (with South Africa, Turkey and Russia most vulnerable).  In addition, he urged attendees to watch out for a weaker Chinese renminbi because of potential nock-on effects on other emerging Asian exporters.