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EMTA Spring Forum (NYC) - April 28

Tuesday, April 28, 2015 

Hosted by HSBC Securities (USA) Inc.
452 Fifth Avenue at 40th Street
Americas Room - 11th Floor
New York City

3:45 p.m. Registration 

4:00 p.m. Panel Discussion
Prospects for the Emerging Markets
Ben Laidler (HSBC Securities (USA) Inc.) – Moderator
Paul DeNoon (AllianceBernstein)
Alberto Bernal (Bulltick Capital Markets)
Shelly Shetty (Fitch Ratings)
Jim Barrineau (Schroders Investment Management)

5:00 p.m. Cocktail Reception  

Attendance is complimentary for EMTA Members / US$695 for non-members.



EMTA Spring Forum Speakers Expect Markets to Absorb Eventual Fed Rate Hikes

HSBC hosted EMTA’s Spring Forum in New York City on Tuesday, April 28, 2015.  A capacity crowd of 150 EM market professionals attended the event, which covered global economic trends as well as country-specific topics.

Ben Laidler of HSBC moderated the event’s panel discussion, first polling analysts for their views on the prospects for Fed hikes, as well as the notable reversal in recent days of the dollar.  Schroders’ Jim Barrineau suggested that the much-anticipated hiking cycle in fact already began (at least in its effects) during the ‘taper tantrum’ of spring 2013, when financial market participants first recognized the eventual demise of the low-rate, high liquidity global environment.  The market will adjust to increased US rates because FOMC actions will be gradual, and the actions won’t be aggressive, in his view.  Paul DeNoon of AllianceBernstein concurred, adding that the reduced US liquidity would likely occur in the context of continued loose monetary policy in the Eurozone, Japan and elsewhere.

Alberto Bernal (Bulltick Capital) predicted that US rates would remain unchanged until December 2015 at the earliest, although future weakness in US employment data could still lead to a continuation of the 7-year “Goldilocks” scenario.  “People are too bullish on the US economy,” he stated, and underscored frugal consumer spending.  Bernal retained a more dovish US$ forecast, with 1.15 euros per dollar (and 2.7 BRL per dollar) at year-end, with UST 10-years at 1.75% in December.

Fitch’s Shelly Shetty praised Latin American sovereigns for both allowing their currencies to depreciate, and maintaining the financial buffers they have accumulated.  However, dollar strength could have implications -- “we have to take a look at how local currency weakness will affect public debt dynamics,” she stated.

The panel addressed the overnight announcement of additional Chinese measures to loosen monetary policy, with DeNoon labeling it a positive development and likely sufficient to quash “hard landing” fears.  He anticipated 6.5% Chinese growth in 2015.  “The Chinese move will stimulate the economy in ways that had not previously been expected,” noted Barrineau.  “While it isn’t exactly QE or LTRO, it is a more aggressive use of monetary policy – and it makes Chinese assets more interesting,” he concluded.

Laidler asked for panelists to address the slump in oil prices.  Shetty observed that this shock affected sovereigns differently.  Highly speculative, oil-dependent sovereigns were moved to negative outlooks (including Angola, Gabon and Nigeria); while investment-grade exporters have performed better, due to their fiscal buffers and pro-active policy responses.  DeNoon argued that the oil price drop highlighted the importance of floating exchange rates as a buffer to external shocks.

Was political risk in the markets increasing?  DeNoon acknowledged a sense of rising political concerns, while acknowledging that political risk was part of EM business.  A change in client mandates arising from geopolitical or ESG concerns are factors that a portfolio manager had to consider.  Venezuelan political issues were of greatest concern to Shetty, while protests in countries such as Chile were deemed to-be-expected “growing pains” of the country’s economic transformation.

Barrineau remained skeptical on Brazil, while allowing that the new economic team could potentially make huge headway.  Despite recommending that “you have to be involved,” he wasn’t prepared to “bet the ranch on it yet.”  DeNoon and Bernal believed that the government would be able to make sufficient fiscal progress to avoid a ratings agency downgrade.  Shetty noted that Brazil, at BBB, was not at risk of losing an investment grade rating , although many of its economic statistics were weaker than comparably-rated credits.

Mexico’s energy reforms were a “historic transformation” in Shetty’s opinion, and Barrineau seconded that they would be President Pena Nieto’s legacy.  Shetty praised the government for being proactive in cutting spending as a response to the oil price slump, and for considering 2016 cuts as well.  Barrineau deemed oil weakness as less important than the reform measures, which will eventually lead to increased FDI flows to Mexico.

Most speakers echoed comments at EMTA’s recent Buenos Aires forum that regardless of the winner of Argentina’s October elections, progress would eventually be made in resolving the sovereign default situation.  Barrineau, however, expressed concern at the market’s “over-bullishness,” and commented that “some in the market are under-estimating the scope of Argentina’s economic problems.”  He also cautioned that Argentina tended to “jam the market” with huge supply whenever it could.  Shetty noted that Argentina would likely emerge post-default with a highly speculative grade rating.

“People ask me when Venezuela will blow up,…but it already has blown up,” cautioned Bernal, who sited the country’s dramatic economic deterioration.  He viewed the credit as a potential short–term trade but emphasized that the current situation “will end badly, and not on a democratic basis.”