The dominant sentiment across the emerging markets is optimism about credit fundamentals.
As the shocks from Asia, Russia and Brazil recede, the emerging markets are enjoying a return of investor confidence, with ratings upgrades in Mexico, Turkey and Russia, and increasing confidence in Brazil.
“What’s different now compared with other years,” says Iain Hardie, head of emerging markets fixed income at Morgan Stanley Dean Witter, “is that whereas in the past the emerging markets have been the core of investor concern and the core of volatility, this is not presently the case. We’ve been in a situation for most of this year where the market has been looking for opportunities to do better, and generally has done so. But it’s been a case of doing better when external factors allow.”
No bond house has done better at capitalizing on this broad bullishness than Morgan Stanley, showing not only superior volumes of issuance but covering an unmatched range of regions and sectors. “We’re proud of the breadth of business we’ve done, geographically and by type,” says Hardie, pointing to deals, both corporate and sovereign, through Latin America, Asia, the Middle East and Africa.
In January, Morgan Stanley lead managed a $1.5 billion sovereign issue for Turkey, the country’s largest ever and, with a 30-year maturity, its longest. At an uncertain time, when a 20-year Brazilian issue had been cancelled, the Turkish deal was marketed and sold in only two days.
The deal was the third in succession mandated to Morgan Stanley by Turkey, and. Hardie points to repeat business as a measure of client satisfaction. “We’ve lead managed 10 euro issues for Argentina,” he says, “and such returning business is for us a significant stamp of approval. We’ve also done repeat business for Mexico, Brazil and the Philippines.”
On the corporate side, highlights have included the $570 million issue last year for Mexico’s Alestra. The first Mexican deal since the Russian crisis, it was also Mexico’s largest of 1999. Other corporates include CableVision and MetroGas, both of Argentina.
Volume over the rest of 2000 is expected to be smaller, since many of the sovereigns are a long way through funding programmes. Turkey has now raised $5 billion out of a target of $6 billion; Brazil has largely met its target, and Argentina is ahead of its original borrowing plans. “We’ve had a lot of supply concerns taken out of the market,” says Hardie “which is reason to be positive.”
This optimism is compounded by more investment grade sovereigns appearing: “What has been particularly significant this year is that with the upgrades of South Africa and Mexico to full investment grade and with the expectation of an upgrade in Mexico’s case, we’re seeing a lot of investment-grade buyers appear on the market; and that will have a very key future impact.”
