EMTA FORUM IN HONG KONG: OPINIONS VARY ON GLOBAL OUTLOOK
EMTA’s Second Annual Hong Kong Forum was held at the Ritz-Carlton Hotel on Monday, September 24, 2007 and was hosted by ING Wholesale Banking. The event included a lunchtime panel discussion and was attended by approximately 100 participants in the EM debt markets.
Tim Condon of ING Wholesale Banking opened the panel by thanking attendees for braving the day’s typhoon conditions in order to participate. He noted that, despite hoping to focus on other issues, it remained impossible to discuss the EM debt markets without first addressing the US economic outlook.
Investor representatives Anthony Chan (AllianceBernstein) and Suvir Mukhi (Income Partners Asset Management) were the most optimistic of the speakers in their assessment that EM countries will post respectable gains in 2008. Walter Molano (BCP Securities) disagreed, referring to himself as “suicidal” about the outlook, and advising investors to be vigilant, with consumer spending data for the 2007 holiday season on the horizon. Warren Mar (JPMorgan) stated that his firm’s outlook stood somewhere in between the buy-side speakers’ relative optimism and Molano’s serious concerns.
Panelists also expressed diverging opinions on the potential for a decoupling of US financial markets from their Asian (ex-Japan) counterparts. Ultimately decoupling is possible according to the buy-siders, with Mukhi noting that a US financial crisis would still have a global impact. Molano saw decoupling as ultimately a political issue.
Mar expects to see an increase of EM corporate issuances to the tune of US$150 billion in 2007 compared with US$100 billion in 2006. He also predicted that crossover investors will play a larger role in the corporate market in the future. Mukhi voiced optimism on the Asian corporate outlook in particular, with acquisitions prompting companies to obtain more market financing. He anticipates new sectors and new countries to access the market.
Molano described the “pent-up demand” that is a result of the industry’s “dirty secret”—i.e. that dealers have been focusing on their own financing needs since the August financial crisis rather than those of their clients. He anticipates smaller issues coming from new markets such as Mongolia, Azerbaijan and Georgia.
Condon concluded the panel by asking for recommendations about where investors would make the most money over the next twelve months. Chan recommended the Philippines on both the sovereign and local currency side. Mar spoke optimistically on EM corporate plays citing the Chinese property sector, Russian telecoms and select Argentine corporates in particular; he cautioned that the asset class remains vulnerable to headline risks and urged investors to trade the ranges. Mukhi agreed that portfolio managers “have to be nimble” and move in and out of securities, and recommended Asian banks that have widened on sub-prime fears. Molano suggested that investors consider Argentine GDP warrants, Province of Buenos Aires 2018 bonds and RUB-denominated bonds.