LatinFinance - July/August 2014 - 19

continue low, even after the Fed puts an
end to quantitative easing.
Pablo Goldberg, who joined US fund
manager BlackRock as portfolio manager
and senior strategist for emerging markets
in April, says quantitative easing and very
low rates by the main central banks around
the world were contributing to the high
levels of liquidity.
"There is a lot of chatter about the
possibility of the European Central Bank
moving forward with more easing. It's
being discussed which way this easing may
take place. And the rates in the US, despite
tapering, are not likely to be increased
any time soon. There is also a possibility
of some easing on the part of China and
ROLL ON: A let up in political volatility,
particularly on the Russia-Ukraine border,
helped a rebound in sentiment towards
emerging markets in May and June

potentially even more QE from the Bank of
Japan," he says.
"So, loose monetary conditions around
the world are likely to continue for some
time, which means that liquidity will
remain abundant."
Vexed investors
But the tendency to squeeze deals below
prices they consider fair is turning some
investors sour, and some say that issuers
may regret joining the trend, as ultratight deals would underperform in the
secondary market.
Other portfolio managers believe
their chances of snapping up attractive
credits at a reasonable price now lies in
the secondary market. "It's the same
everywhere in emerging markets. It's
definitely a concern. We're going to be
looking at the secondary market, rather
than in the primary market," says a
Europe-based
investor.
By mid-June
US rates had risen
slightly, to 1.68% for
five-year treasuries,
from 1.58% in
mid-May, and to
2.57% for ten-year
treasuries from
2.50% in mid-May.
Some sources said
the emerging market
rally had stabilized
as investors started
showing some
signs of fatigue. The
number of issuances
thinned out in the
second half of June,
as the region's focus turned to the FIFA
World Cup tournament in Brazil. Many
predict August will be a slow month, as it is
often the case.
"I am not sure whether this is a short
window or a long window, but it's great
that companies are taking advantage of the
liquidity conditions," says Karina Bubeck,
in the emerging markets fixed income
research team at US pension provider
TIAA-CREF.
"There are positive attributes to the
emerging market asset class, especially
Latin American corporates. But the
demand is also driven by relative
valuations for EM companies versus US
companies, and it's also driven by macro
considerations." LF
©REUTERS

Argentina's YPF and the Republic of
Uruguay also bought back debt in May and
June.
"Issuers in Latin America, in Brazil
in particular, have been wise, taking
advantage of this window of opportunity
to provide liquidity to investors, and to
extend duration at starkly low yields,"
HSBC's global head of liability management
Matthew Riez tells LatinFinance.
The companies were able to buy back
debt in part because of increased liquidity
in the Brazilian market. Sources say that
even though the liability management
efforts are unlikely to lead to rating
upgrades, they still reinforce a generally
positive view about issuers.
"What the issuers get from the new
bonds is that they are better traded and
more liquid benchmarks, so when they
come with future issuances, when they
need to raise new money, they will be doing
it in reference of bonds that trade well," says
a source.
In late May, research by the deVere
Group, which has some $10 billion under
management, said that investor appetite for
emerging markets had returned to the peak
it reached in the first quarter of 2013, in part
because political volatility has eased.
"Russia has not invaded Ukraine; India
has voted overwhelmingly for a new prime
minister, Mr. Modi, who is unambiguously
dedicated to the cause of economic reform;
while China has shown itself willing to step
in to prevent the collapse of large savings
trust companies, and a wave of bad debt
coming from Chinese property-related
companies and banks has not, so far,
materialized," the firm said.
Despite fears that demand could dry
out, the market has not shown signs of
receding. Most investors in early summer
were expecting US treasury rates to stay low
for months, and were choosing to invest
their capital instead of waiting for rates to
increase, sources say.
"The rally will continue, because the
common wisdom that rates were going to
increase due to the Fed's change of strategy
hasn't been the case," says Dario Pedrajo,
managing director at Kapax Investment
Advisors.
"The market understands that rates will
eventually increase. But the Fed's message
lately leads us to believe that it won't
happen this year or next. It may not happen
in two or three years."
Indeed, Feds chairwoman Janet Yellen
said in mid-June that rates are likely to

MARIO BEAUREGARD, PEMEX

"TO THE EXTENT THAT
THE US ECONOMY
STARTS SHOWING
MUCH MORE SOLID
SIGNS OF RECOVERY,
WE MAY SEE INTEREST
RATES GOING UP, BUT
I DON'T FORESEE THAT
HAPPENING IN A
DISORDERLY FASHION"

July/ August 2014 - L ATINFINA NCE.COM 19
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