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EMTA Forum in Zurich - May 12

Thursday, May 12, 2016 

Hosted by


Mariott Zürich
Neumuehlequai 42
8001 Zürich

3:45 p.m. Registration 

4:00 p.m. Panel Discussion
Prospects for the Emerging Markets
Wike Groenenberg (BNP Paribas) – Moderator
Gonzalo Borja (Credit Suisse Asset Management)
Olgay Buyukkayali (Goldman Sachs)
Luc D’hooge (Vontobel Asset Management)
Jean-Dominique Butikofer (Voya Investment Management) 

5:00 p.m. Cocktail Reception 

Additional support provided by BNP Paribas and Goldman Sachs. 

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

We regret that this event is no open to the media. 


Speakers at EMTA Forum in Zurich Discuss Durability EM Rally

BNPParibas’ Wike Groenenberg opened EMTA’s Third Annual Forum in Zurich on Thursday, May 12, 2016, by observing that, despite a difficult January, mainstream EM debt indices had performed relatively well year to date. A dovish Fed, along with stimulus from EU and Japanese Central Banks, had created a “fairly positive picture,” although the question remained whether EM debt could maintain its recent rally.

Vontobel’s Luc D’hooge agreed that after a run of approximately 6% returns ytd, portfolio managers should question the sustainability of EM performance. January EM debt prices had reflected a “panic state,” but D’hooge asserted that there were “definitely” reasons to remain long EM debt. Gonzalo Borja (Credit Suisse Asset Management) cautioned attendees that, over the past two years, EM corporates had generally performed well in the 1H but ran out of steam in the second half of the year. However, improvements in commodity pricing, dollar weakness and tighter US yields could also provide support to EM debt, especially corporates.

Olgay Buyukkayali, an EM desk strategist from Goldman Sachs’ securities division, reasoned that recent EM strength could be traced to the “pull factors” of low DM rates, the growth scare in developed countries, and major Central Bank liquidity actions. In his view, a neutral stance on external debt was warranted, while there was value in selective local debt, and overweight EMFX positions could be reduced. Voya Investment Management’s Jean-Dominique Butikofer announced his firm had not changed their stance on local market debt, and has remained underweight for the past two years.

Groenenberg introduced the Chinese economy as a panel topic. Defaults have thus far been limited, but were starting to increase, she noted, and signals have emerged that market assumptions of implicit sovereign guarantees might be overly-optimistic. Butikofer noted that Chinese reform progress would take years, and the government has “’given amphetamines to the old companies that support the social system in China.” He praised Standard & Poor’s for “digging further, and looking into which companies China will support [to avoid default],” underscoring that analysts would now be forced to do much more homework in their analysis of Chinese companies. D’hooge stated he was underweight Chinese quasi-sovereign debt, and that, in portfolio selection, it was key “to look at those firms which are essential for the sovereign, and which we think the government will support.”

The dramatic turn of events in Brazil was also analyzed. BNPParibas was among those firms that expected a significant cut in interest rates in the post-Dilma government. Borja opined that Brazilian firms which sell dollar-based products with local-currency costs were attractive, while eschewing Brazilian financials (“even though their involvement in the lavajato scandal is probably quite low”).

“Lavajato is far from being over,” declared Butikofer, who added that “the second national sport in Brazil is corruption.” Butikofer expressed concern that it would take time to change Brazilian business culture in the country, while also questioning how the Temer administration would experience growth if its initial emphasis was on government spending cuts. “Now that the common demon [of Rousseff] is gone, what will put Brazil back on track, and how will the political parties position themselves?” he pondered. He recommended a “wait and see” view, although noting there could be “a lot of work for market-friendly ex-bankers if Brazil follows Argentina’s recent path.”

Comparing other major EM countries, Buyukkayali viewed South Africa as a potentially more rewarding trade than Turkey, “because expectations for South Africa are so low. Rating downgrades [to junk] are sort of factored in, although debt dynamics are stabilizing…and fundamentals are starting to turn the corner.” He specified that the ZAR was undervalued vis-à-vis other EM currencies.

Butikofer argued that the market was underpricing political risk in Turkey, and there could be incidents of resistance to the concentration of power by President Erdogan. He described the country’s liquidity indicators as “poor,” citing low FX reserves and a lower export cover ratio, and speculated that the country might benefit from some investment-grade flows fleeing Brazil, or other potential downgrade candidates. D’hooge concurred in a bearish view on Turkey, acknowledging he had no exposure to Turkish external issues.

D’hooge addressed frontier markets. Congo-Brazzaville had missed out on the recent EM rally, as had Grenada, and yields could be attractive. “But don’t give them a massive allocation,” he quickly added. Moderator Groenenberg outlined a positive case for Angola, which she believed had fallen from favor with other oil exporters, despite “taking action earlier than others to address its budget deficit.”

Other topics covered by the panel included MENA credits, a need to be selective in buying Argentine new issues, Venezuela’s continued debt servicing and the effects of the US elections on EM debt. The event was sponsored by MarketAxess. Additional support for EMTA’s Zurich Forum was provided by BNPParibas and Goldman Sachs.