2012 EMTA Annual Meeting Speakers Offer Upbeat Look on Asset Class for Coming Year
EMTA members gathered at a new location for the trade association’s Annual Meeting on Thursday, December 6, 2012. For the first time in over a decade, the event was moved to Citi’s midtown Manhattan office from the firm’s Tribeca office. Nearly 300 market participants gathered to exchange views and listen as speakers predicted a generally upbeat assessment of EM economies and EM debt instruments.
Guillermo Mondino (Citi) led the event’s first panel of investor speakers. Mondino first requested that panelists review the global economy and the outlook for the Eurozone, and that they discuss the relative importance of global vs. EM-specific factors in a portfolio manager’s decision-making process.
“We are over the hump of Greece leaving the Eurozone,” ventured Tulio Vera of Millennium Capital, who added that European politics would become more crucial in a protracted no-growth period. Loomis Sayles’ Dave Rolley commented that, “I always felt that Greece would leave the Eurozone or Greeks would leave Greece,” while calling attention to the etymology of the word ‘diaspora.’ Jim Barrineau of Schroders recognized that many investors have made money betting that a Greek Eurozone exit could be avoided, while cautioning that “over-arching inefficiencies and underlying tensions” in the Eurozone remained. Hari Hariharan (NWI Investments) stated that he was not concerned about an economic meltdown in Italy.
Speakers agreed with Mondino’s premise that the Chinese economy would grow between 7 and 8% for the next five years, with Vera expressing his view that too much time was spent worrying about Chinese growth. Hariharan believed Beijing has gotten growth exactly to its optimal level.
Slow global economic growth would leave commodities range-bound, Rolley argued, while Vera offered a slightly more optimistic assessment, assuming the US avoided the “fiscal cliff” scenario. Oil prices could surprise the market on the upside, Barrineau advised, as could agricultural products following poor Russian wheat crops, the US drought and the loss of arable land on a global basis.
The MXP remained a favored FX play by investors (“I used to hate it, but I have now capitulated,” admitted Barrineau). Rolley also recommended the Thai baht and Malaysian ringgit, with Vera enthusiastic on prospects for the Korean won and Indian rupee (while eschewing the Brazilian real).
Following legal developments on Argentina’s debt, the panel assessed the likelihood of a sovereign default. Vera reasoned that a technical default was possible, while suggesting this was not his base case. Other speakers agreed, “They don’t have to default if they don’t want to, they have the tools to pay,” asserted Rolley.
Joyce Chang of JPMorgan became the longest-serving speaker at an EMTA panel when she participated in the panel for the 17th consecutive year, a point noted by fellow panelists while recalling how the market had matured, and evolved, since her first Annual Meeting appearance in 1996.
Chang began the sell-side session with a review of 2012 themes and trends. She highlighted that EM had become an increasingly mainstream asset, with the majority of sovereign issuances investment-grade rated, and 75% of corporate bonds also bearing investment-grade ratings. “The CEMBI has become the new EMBI,” she added, referring to the coming of age of the corporate bond market, and she emphasized growing investor interest in frontier markets.
Looking to 2013, Alberto Ades of Bank of America Merrill Lynch forecast 3.2% global growth, slightly above his expectation of 3.1% growth in 2012. He saw signs of weakening in the US economy, while expecting that EM countries would largely show improvement-- Ades predicted EM growth at 5.2% in 2013, largely led by China, India and Brazil.
As for risks for the global markets, Pierro Ghezzi of Barclays hypothesized that the consensus last year that Greece would leave the Eurozone was based on “most non-Europeans underestimating the political will to keep the Eurozone together.” He spoke constructively on Italy’s future, assuming a muddle-through Spanish economy.
Deutsche Bank’s Drausio Giacomelli adopted a slightly more bearish tone, arguing that “the systemic risks are not over, although they have been constrained…policymakers have convinced the market they have done enough for now.” Alberto Ramos of Goldman Sachs expressed concern that the “magnitude of the adjustments are still quite daunting.” He warned that “we are reaching the limits of what is socially acceptable” in terms of fiscal adjustments and pointed out rising polls for anti-EU parties in Italy.
On individual EM credits, the panel was unanimous in recommending the Mexican peso and Venezuelan sovereign debt (“the yields are still super-high and there is a lack of alternatives,” summarized Ghezzi).
On Argentine debt, panelist opinions varied. Giacomelli advised investors to consider local debt, while Chang ventured that EUR-denominated debt could prove interesting if it were carved out from recent legal decisions. Ramos expected that Argentina could prove to be a large component of 2013 returns, “but call your lawyer,” he advised. Most cautious was Ghezzi, who advised “I wouldn’t touch Argentina if one doesn’t have to be there, because we don’t know what will happen.”
The panel concluded with trade recommendations. Ramos favored Brazil’s inflation-linked bonds and preferred local markets over external debt. The RUB, KRW and long end of the Mexican curve appealed to Giacomelli. Ghezzi spoke positively on Brazilian and Russian bonds, as well as the ZAR and RUB. Russian oil and gas corporates, PDVSA and Cemex were among Chang’s top picks.