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FRONTIER MARKETS: NOT TOO EDGY
Wall Street Journal
Sept 6 2013
It might seem borrowers in frontier markets-the very riskiest end of
the emerging-markets scale-should be looking down and out after this
summer's rumbles.
But just this week Armenia, Kenya and Mozambique were getting active
in the global bond markets. This counters some opinions that once
the Fed pulls back from its stimulus, frontier markets could be left
entirely in the cold.
Efforts by governments to engage with international bond markets
shows investors are still receptive to cutting deals. Governments
appear to be willing to pay a bit more to get the funding, and the
investors are willing to take on the perception of higher risks.
Armenia will start schmoozing with investors for an inaugural dollar
bond next week. The meetings start Tuesday in L.A., before moving to
New York, Boston and London through the rest of the week.
Timothy Ash, emerging market credit strategist at Standard Bank,
scouted out the country in May. "Generally I am pretty constructive
on this credit," he said. Growth and debt numbers look good, and
politically, "the Armenians seems to have done what the Ukrainians
have failed to do, i.e. keep relations with Russia, the U.S. and Iran
good at the same time," Mr. Ash said.
To the casual observer with a penchant for U.S.-immigration history,
the roadshow kicking off in Los Angeles might look to have something
to do with the city's substantial population of Armenian Americans.
U.S. Census Bureau statistics put the number at around 214,618 in 2011.
But, as Richard Segal, emerging-market strategist at Jefferies
International, pointed out, there are many emerging-market investors
based in and around L.A., including some big players. "Borrowers will
often travel for the sake of the two or three large EM funds based
there," Mr. Segal said.
For instance, PIMCO and TCW are based in L.A.
If there are any doubts that the Armenia deal is some kind of outlier,
just look to Africa.
Earlier Friday, Mozambique completed the sale of its first bond,
a $500 million agency deal, backed by the government, to support the
country's agricultural sector. This didn't come cheap, yielding 8.5%
for the seven-year money, a number slightly higher than the low-8%
range that the country had initially touted. But it got done.
Next up could be Kenya, with a deal that would be its first on
international markets. If the country gets at least the $1.5 billion
it's looking for, this will be the biggest-ever debut from an African
country. The money will be used to build or fix its roads, rails
and ports.
During recent market turmoil, frontier markets held their ground
comparatively better than the broader emerging market investment
world. Data from J.P. Morgan showed that since March, a widely-used
dollar bond index for emerging markets , the EMBI Global, lost 9%
of its value. The NEXGEM index, referencing frontier markets, lost
only 5%.
These dips are pretty big drops, showing investors need to weather
bouts of volatility in these markets. When the mood sours, they are
often first to be hit.
The cheap deal that Rwanda got on its debt debut earlier this year
may prove to be a genius bit of timing by that tiny state. Those days
are over for now.
Still, frontier markets are down but not out.
Ben Edwards and Serena Ruffoni contributed to this report.
http://blogs.wsj.com/moneybeat/2013/09/06/frontier-markets-not-too-edgy/
Wall Street Journal
Sept 6 2013
It might seem borrowers in frontier markets-the very riskiest end of
the emerging-markets scale-should be looking down and out after this
summer's rumbles.
But just this week Armenia, Kenya and Mozambique were getting active
in the global bond markets. This counters some opinions that once
the Fed pulls back from its stimulus, frontier markets could be left
entirely in the cold.
Efforts by governments to engage with international bond markets
shows investors are still receptive to cutting deals. Governments
appear to be willing to pay a bit more to get the funding, and the
investors are willing to take on the perception of higher risks.
Armenia will start schmoozing with investors for an inaugural dollar
bond next week. The meetings start Tuesday in L.A., before moving to
New York, Boston and London through the rest of the week.
Timothy Ash, emerging market credit strategist at Standard Bank,
scouted out the country in May. "Generally I am pretty constructive
on this credit," he said. Growth and debt numbers look good, and
politically, "the Armenians seems to have done what the Ukrainians
have failed to do, i.e. keep relations with Russia, the U.S. and Iran
good at the same time," Mr. Ash said.
To the casual observer with a penchant for U.S.-immigration history,
the roadshow kicking off in Los Angeles might look to have something
to do with the city's substantial population of Armenian Americans.
U.S. Census Bureau statistics put the number at around 214,618 in 2011.
But, as Richard Segal, emerging-market strategist at Jefferies
International, pointed out, there are many emerging-market investors
based in and around L.A., including some big players. "Borrowers will
often travel for the sake of the two or three large EM funds based
there," Mr. Segal said.
For instance, PIMCO and TCW are based in L.A.
If there are any doubts that the Armenia deal is some kind of outlier,
just look to Africa.
Earlier Friday, Mozambique completed the sale of its first bond,
a $500 million agency deal, backed by the government, to support the
country's agricultural sector. This didn't come cheap, yielding 8.5%
for the seven-year money, a number slightly higher than the low-8%
range that the country had initially touted. But it got done.
Next up could be Kenya, with a deal that would be its first on
international markets. If the country gets at least the $1.5 billion
it's looking for, this will be the biggest-ever debut from an African
country. The money will be used to build or fix its roads, rails
and ports.
During recent market turmoil, frontier markets held their ground
comparatively better than the broader emerging market investment
world. Data from J.P. Morgan showed that since March, a widely-used
dollar bond index for emerging markets , the EMBI Global, lost 9%
of its value. The NEXGEM index, referencing frontier markets, lost
only 5%.
These dips are pretty big drops, showing investors need to weather
bouts of volatility in these markets. When the mood sours, they are
often first to be hit.
The cheap deal that Rwanda got on its debt debut earlier this year
may prove to be a genius bit of timing by that tiny state. Those days
are over for now.
Still, frontier markets are down but not out.
Ben Edwards and Serena Ruffoni contributed to this report.
http://blogs.wsj.com/moneybeat/2013/09/06/frontier-markets-not-too-edgy/