Emerging-Market Debt Gains to ‘Slow,’ JPMorgan Says (Update2)
By Lester Pimentel and Drew Benson
July 13 (Bloomberg) -- Emerging-market bond gains will “slow” in the second half of 2009 as corporate defaults climb and interest-rate cuts end, JPMorgan Chase & Co. said.
Emerging-market yield spreads will finish the year at 400 basis points over U.S. Treasuries, JPMorgan analysts led by Joyce Chang wrote in a report dated July 10. A basis point equals 0.01 percentage point. Inflows into emerging-market debt funds will be “subdued,” the report said.
Central banks in Asia, Central and Eastern Europe, the Middle East and Africa will end rate-cutting cycles next year, while most in Latin America will continue to reduce borrowing costs until as late as 2011, the report said.
Israel and the Czech Republic will be among the first nations to raise rates next year “if there is a synchronized global recovery,” the analysts said. Chile is the exception among Latin American nations, with rate increases possible in mid-2010.
The extra yield that investors demand on emerging-market bonds instead of U.S. Treasuries narrowed four basis points to 4.46 percentage points, according to JPMorgan’s EMBI+ Index.
JPMorgan recommended investors take an “overweight” position on Argentine and Venezuelan bonds.
The bank raised Argentina from “market-weight” after June 28 mid-term elections in which President Cristina Fernandez de Kirchner’s ruling coalition lost its majority in the legislature.
“Major economic policy changes are not expected as the administration formally holds office until 2011,” the report said. “However, the broad-based defeat of government candidates curbs the downside risk from potential anti-business initiatives.”
Peru Cut, Iraq Raised
JPMorgan cut Peru to “market-weight” from “overweight” on growth risks and rising political uncertainty and lowered El Salvador to “underweight” from “market-weight” on a slump in remittances from Salvadorans working abroad. The bank upgraded Iraq to “market-weight” from “underweight,” citing “notable improvements in the security situation.”
On foreign exchange rates, JPMorgan said “most emerging market currencies are now at close to fair value with only the Mexican peso and the Hungarian Forint remaining cheap.”
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net;
Last Updated: July 13, 2009 15:57 EDT
By Lester Pimentel and Drew Benson
July 13 (Bloomberg) -- Emerging-market bond gains will “slow” in the second half of 2009 as corporate defaults climb and interest-rate cuts end, JPMorgan Chase & Co. said.
Emerging-market yield spreads will finish the year at 400 basis points over U.S. Treasuries, JPMorgan analysts led by Joyce Chang wrote in a report dated July 10. A basis point equals 0.01 percentage point. Inflows into emerging-market debt funds will be “subdued,” the report said.
Central banks in Asia, Central and Eastern Europe, the Middle East and Africa will end rate-cutting cycles next year, while most in Latin America will continue to reduce borrowing costs until as late as 2011, the report said.
Israel and the Czech Republic will be among the first nations to raise rates next year “if there is a synchronized global recovery,” the analysts said. Chile is the exception among Latin American nations, with rate increases possible in mid-2010.
The extra yield that investors demand on emerging-market bonds instead of U.S. Treasuries narrowed four basis points to 4.46 percentage points, according to JPMorgan’s EMBI+ Index.
JPMorgan recommended investors take an “overweight” position on Argentine and Venezuelan bonds.
The bank raised Argentina from “market-weight” after June 28 mid-term elections in which President Cristina Fernandez de Kirchner’s ruling coalition lost its majority in the legislature.
“Major economic policy changes are not expected as the administration formally holds office until 2011,” the report said. “However, the broad-based defeat of government candidates curbs the downside risk from potential anti-business initiatives.”
Peru Cut, Iraq Raised
JPMorgan cut Peru to “market-weight” from “overweight” on growth risks and rising political uncertainty and lowered El Salvador to “underweight” from “market-weight” on a slump in remittances from Salvadorans working abroad. The bank upgraded Iraq to “market-weight” from “underweight,” citing “notable improvements in the security situation.”
On foreign exchange rates, JPMorgan said “most emerging market currencies are now at close to fair value with only the Mexican peso and the Hungarian Forint remaining cheap.”
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net;
Last Updated: July 13, 2009 15:57 EDT