Headlines About Emerging Market’s Weakness
$RSX, $VALE, $EWZ $PBR
On Russia
Russian President Vladimir Putin was on 60 Minutes Sunday with Charlie Rose and spoke at the United Nations. He said Russia isn’t putting troops in Syria, for now anyway. Check out the knowing smile and comments in the CBS clip, “Once a KGB spy, always a KGB spy?”
President Barack Hussein Obama and President Putin addressed the United Nations General Assembly Monday and held their 1st formal meeting in more than 2 years.
See The Wall Street Journal story, “Obama, Putin to Meet at U.N. Amid Growing Syria Role for Russia” The Market Vectors Russia exchange-traded fund (NYSEArca:RSX) down 2.24% Monday.
| Symbol | Last Trade | Date | Change | Open | High | Low | Volume |
| NYSEArca:RSX | 15.29 | Sept-28-2015 | -0.35 | 15.46 | 15.51 | 15.26 | 12,073,900 |
| HeffX-LTN Analysis for RSX: | Overall | Short | Intermediate | Long |
| Bearish (-0.33) | Neutral (-0.08) | Bearish (-0.40) | Very Bearish (-0.50) |
On Brazil
The Brazilian stock market is now smaller than the Mexican Bolsa as the real hits new lows and investors bail out of stocks. The currency weakened to an all-time intraday value against the USD of R$4.2478 last week, compared with a previous intra-day low of R$4.014 set nearly 13 years ago.
See “Dilma’s dilemma over weak Brazilian real,” in the Financial Times. The iShares MSCI Brazil Capped ETF (NYSEArca:EWZ) finished down 4.62% Monday, while miner Vale (NYSE:VALE) is down 7%, while telecom Oi, and the government-controlled Petroleo Brasileiro (NYSE:PBR), entangled in the ongoing corruption scandal, were each down 6% during the session.
| Symbol | Last Trade | Date | Change | Open | High | Low | Volume |
| NYSEArca:EWZ | 20.64 | Sept-28-2015 | -1.00 | 21.34 | 21.38 | 20.64 | 23,672,400 |
| HeffX-LTN Analysis for EWZ: | Overall | Short | Intermediate | Long |
| Very Bearish (-0.52) | Neutral (-0.22) | Very Bearish (-0.72) | Very Bearish (-0.62) |
In a note out Monday morning, Nomura asks this Big Q: How much worse things can get for emerging market hard-currency debt issuance, especially emerging market corporate bonds in non-local currencies?
Jens Nordvig and David Fritz are concerned about what this means for corporate issuers’ balance sheets in emerging markets, but they also note that sovereign debt issuance in hard currency has been very moderate in recent years, providing a counter-balancing effect.
They added…
After 3 years (2012-2014) of very strong net issuance in emerging markets, around $250-B per year, issuance has dropped to much lower marks during Y 2015.
Chinese entities managed to issue around $50-B in debt …
From a forward-looking perspective, the Big Q is: How much worse can it get?
One angle on this is to look at the net flows in terms of bond issuance and make projections based on various assumptions about the likely gross issuance going forward.
For some countries Brazil and Russia, for example, gross issuance has already been close to Zero for a while now
For Russia, this is in large part due to sanctions, which are likely to last for another year at least. Hence, the trajectory of the net flow in those countries is currently mostly a function of the maturity schedule of previously issued debt.
Regarding trends in net issuance over the last 12 months compared with the range of net issuance, defined as the average in Y 2013 and 2014 as the top of the range and the most negative scenario possible, assuming no gross issuance over the coming 12 months:Brazil and Russia are very clear outliers, with strongly negative issuance. At the other end of the spectrum, Mexico, Chile, Taiwan and Indonesia have recorded substantial issuance over the last 12 months.
China is a separate case.
The recent issuance for China has been far beyond the rest of emerging markets, although it has slowed in 2-H of Y 2015. Further, it is difficult to know what the appropriate range might be.
Stay tuned…
HeffX-LTN
Paul Ebeling
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