EMTA Corporate Bond Forum in Boston - Nov. 14

4:00 p.m. Panel Discussion
Opportunities and Challenges in EM Corporate Bonds
Anne Milne (Bank of America Merrill Lynch) – Moderator
Eric Ollom (Citi)
Susan Wisialko (GMO)
Elisabeth Colleran (Loomis Sayles)
Paolo Valle (Manulife Asset Management) 

5:00 p.m. Cocktail Reception 

Additional support provided by Citi. 

We regret that this event is closed to the press.

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

EMTA Corporate Bond Series Continues in Boston on November 14, 2017

Potential risks to the EM corporates bond market were reviewed at EMTA’s Corporate Bond Forum in Boston, held on November 14, 2017. Approximately 50 EM market participants attended the event, which has hosted by Bank of America Merrill Lynch. MarketAxess sponsored the event, with additional support from Citi.

Panel leader Anne Milne (Bank of America Merrill Lynch) noted that EM corporate returns were approaching 7% ytd, despite concerns over North Korea, sanctions against Russia and Venezuela, rising US rates and even weather disruptions. Milne asked speakers if global liquidity, and the benign risk sentiment that have supported EM corporates, would continue, and what factors could de-rail performance.

Citi’s Eric Ollom ruled out North Korea, the Middle East and US Fed policy errors as potential causes for market turmoil. For him, a sudden political shift--such as the demise of a leader in a personality-driven economy—would be the more likely spark of any market setback. Susan Wisialko (GMO) ventured that an unknown, unanticipated geopolitical issue likely posed the greatest risk to EM corporates.

Elisabeth Colleran (Loomis Sayles) noted that clients often bring up “the ghosts of the taper tantrum, but we are in a much stronger position now.” She stressed the resilience of the asset class, and ruled out China as a likely risk to EM corporates. On the other hand, Paolo Valle (Manulife Asset Management) commented that, while not his base case, a policy mistake in China should be included on the short list of potential risks. In addition, he feared a sudden shift in global liquidity, “because it has driven the market for the last ten years.”

Milne noted the narrowing spread differential between quasi-sovereign and sovereign bonds in 2017, and asked how panelists approached quasi-sovereign issues. Wisialko detailed her process of quasi-sovereign analysis, including an examination of the company’s standalone credit quality, the likelihood of government support in case of difficulty, and the fair value of the sovereign.

“How many times have I been told ‘the sovereign won’t let them default’” noted Colleran, who affirmed that analyzing sovereign support of troubled quasi-sovereigns as one of the most difficult parts of her job. Ollom suggested that the market may overestimate sovereign support for banks over natural resource companies, while Wisialko pointed out that, “possible bank deposit runs would be much more visible to domestic savers, especially if they are voters in government elections.”

The panel discussed progress in corporate governance and corruption. Ollom opined that improvements in Brazil post-Lava Jato stood in contrast to South Africa, “where things might be sliding.” He urged investors to push issuers to list bonds on exchanges which demand more disclosure. Valle reasoned that corruption would never disappear completely in either EM nor DM economies, while hoping that reforms in Brazil were leading to greater transparency. Colleran suggested that technology might be making the exposure of corruption easier. Wisialko highlighted the importance of investors doing their due diligence.

Demonstrating that differing perceptions make horse races, panelists saw the upcoming elections in Mexico—combined with the uncertainty over NAFTA— as either a large risk (Colleran) or a potential buying opportunity (Ollom). They viewed Brazil’s elections as more likely to offer upside, with Wisialko venturing they could lead to reforms. Valle noted that elections often lead to increased government expenditures (and thus higher debt/GDP ratios), while creating uncertainty as to what policies the victor would in fact enact. However, elections “always pose good opportunities for investors to make money, because of market volatility.”

There was general concurrence that corporate supply from Asia would continue, with Ollom commenting that regional demand was able to absorb issuance. He expected new issuance from Argentina to increase following the results of the country’s midterm elections, while Brazilian and Mexican corporate issuance could contract in the event of political drama. Colleran hoped to see more diverse issuance in 2018, and expected more CAPX-driven issuance. Valle expected global conditions and the investor search for yield to promote greater issuance; he also noted Asian accounts were increasingly seeking paper from other regions.