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EM fund managers move to more exotic currencies as dollar hits lows

Posted in Uncategorized by dionrabouin on January 27, 2018

NEW YORK (Reuters) – Some of 2017’s top-performing emerging market fund managers are reshuffling their currency holdings, paring back bets on some of the asset class’ big names and shifting to more exotic currencies like the Czech koruna, Uruguayan peso and the Egyptian pound.

The dollar’s bounceback in September, including its best week of the year to close the month, has not changed managers’ underlying bearishness on the currency. The shift represents a sense that the greenback’s remarkable slide against rivals like the Mexican peso and Brazilian real may stall – the dollar bounced to a three-month high versus the peso on Thursday – while other currencies are due for a rally.

Fund managers’ embrace of these lesser known and less liquid currencies is a sign that even within emerging markets, long considered an exotic and volatile area to begin with, investors are pushing out their risk profile. That could represent either a savvy wager or irrational exuberance.

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Data from research firm eVestment shows that local currency bond and outright currency exposure to Uruguay more than doubled from the second quarter of 2016 to the second quarter of 2017, long positions in the Czech Republic’s local currency bonds have surged to 44.9 percent from 11.4 percent during that period and the proportion of investors with currency exposure to the Czech koruna has soared to 68.0 percent from 12.7 percent.

Investors with currency exposure to Egypt have grown from 2.53 percent in the second quarter of 2016 to 45.3 percent in the same quarter this year.

EVestment tracks the number of investors in its emerging markets local currency universe who report they own the bonds or have long exposure to the currency of the specified country.

Fund managers who spoke to Reuters described a range of investment instruments including currency forwards, local currency bonds and some government T-bills.

Leah Traub, partner and portfolio manager at Lord Abbett, said her emerging market funds have recently entered positions, “into some off-market names” or currencies outside the JP Morgan emerging market diversified global bond index that she uses as a benchmark, including Uruguay, Egypt and India.

Her funds have rotated some exposure out of currencies correlated to the euro in emerging Europe, such as Hungary and Poland, and Traub said she is looking for emerging market currencies with lower levels of correlation to developed market currencies.

“If there was any theme to it it’s just that the much better global backdrop allows some of these more idiosyncratic stories to really unfold,” she said in a phone interview last week.

Andy Keirle, who manages T Rowe Price’s EM local currency bond fund, has also added positions in Egypt as well as the Sri Lankan rupee. At the same time, he reduced a long position in the Mexican peso he took ahead of the U.S. election.

Egypt has been favored by investors following the country’s decision to float its currency, adopt a value-added tax and cut energy subsidies as part of a loan package from the International Monetary Fund. The IMF has called Egypt’s reforms “bold” and said the North African nation is “gathering strength” as the fund prepares to issue a $12 billion loan, its third tranche in the package.

Jean-Dominique Bütikofer, Voya Investment Management’s head of emerging markets fixed income, said he is now looking for relative value trades, such as taking long positions on the Turkish lira against the South African rand.

“When it comes to the market cycle, we don’t expect the market to sell off, but we have peaked,” Bütikofer said. “You can stay at a high level and you can plateau for a long time. The beauty of fixed income, including local currency and local rates, is you have a decent coupon. So going defensive too early might cost you a lot of money.”

Bütikofer and others said they will be closely watching next week’s IMF/World Bank meeting in Washington for clues about the next potential catalyst for global fund flows.

While fund managers are diversifying – and some said they are taking a bit of risk off the table after a profitable 2017 so far – none of the 13 interviewed said they expect to see emerging market currencies bull run come to an end soon.

“Historically since the 1970s, dollar cycles have traveled in multi-year paths, so it wouldn’t be surprising to be in a three-year, four-year cycle,” said Jim Barrineau, portfolio manager and head of emerging markets debt for Schroders.

The dollar index .DXY, which tracks the greenback against six major currency rivals, has sunk from a high of 103.82 on Jan. 2 to a 2017 low of 91.15. But the index had been as low as 79.52 as recently as 2014.

“It’s hardly been a collapse of the dollar,” Barrineau said. “Arguably, if history is any guide, we have more to go.”

Reporting by Dion Rabouin; Editing by Christian Plumb and Matthew Lewis

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Latin American IPO boomlet gathers steam, led by Brazil, Argentina

Posted in Uncategorized by dionrabouin on January 27, 2018

Oct 25 (Reuters) – Recovery hopes in two of Latin America’s largest economies, Brazil and Argentina, have triggered a surge in initial public offerings, with companies in mining, food, construction and fuel distribution set to test the markets in coming months.

More than 25 Latin American companies could go public within the next year, banking, exchange and market sources say, potentially adding greater heft to stock markets in regional economies where publicly traded companies have traditionally been underrepresented.

Latin American IPOs have so far pulled in $6.14 billion this year, or an elevenfold increase from the same period last year.

Companies such as Petrobras’ fuel distribution unit BR Distribuidora, Brazilian zinc miner Votorantim Metais, Argentine foodmaker Molinos Canuelas and cement maker Loma Negra are expected to go public by December. The year has already seen IPOs from such high-profile names as retailer Grupo Carrefour Brasil SA, Mexican tequila maker Jose Cuervo and Brazil-based airline Azul.

“We would consider the increased number of IPOs to be more of an indicator of improving sentiment and both macro- and company-level fundamentals, not a sign of greed that signals a market top,” said Eric Sprow, managing director of equities at AllianceBernstein.

The IPO boomlet has coincided with a wider rally in emerging markets, helped in Latin America by governments in Argentina and Brazil that have sought to ease regulations to turbocharge economic growth.

The amounts being raised are still a fraction of that seen in more developed markets. U.S. social media company Snap Inc on its own raised $3.9 billion, equivalent to more than half the total for all of Latin America’s IPOs to date in 2017.

Argentina’s market capitalization represented just 11.7 percent of its gross domestic product in 2016, according to the World Bank, down from 27.4 percent in 2003. In 2016, Brazil’s market cap was 42.2 percent of GDP and Mexico’s was just 33.5 percent. That compared with 147 percent for the U.S.

But the trend is rising.

In Brazil, sales of new stock have already topped their best year since 2013. Including follow-on offerings, equity sales could reach 40 billion reais ($12.3 billion), said a banker at a large global firm in Brazil, who asked not be named.

A top executive at one underwriter in Brazil, who asked not to be named, said he expects about nine more IPOs and secondary offerings in what he called a “very important year” for Brazil.

At least five Argentine companies are likely coming to market in the next 12 months, according to Marcos Wentzel, managing director of investment bank and brokerage firm Puente.

“The climate is heating up and it’s very positive for companies who are looking to catch the moment,” Wentzel said, during an interview in New York ahead of Argentina’s midterm elections. Business-friendly President Mauricio Macri’s coalition cruised to victory in those elections, seen as another bullish sign.

Wentzel cited the recent IPO of Argentine online travel company Despegar.com Corp, which raised $332 million after being priced at the top of the forecast range.

Even in Mexico, where the stock market has underperformed compared to Brazil and Argentina, as many as 10 companies could list by year-end, sources from Mexico’s exchange told Reuters in September.

In Peru, state-run oil firm Petroperu aims to list shares after it secures financing for its $5.4 billion Talara refinery project, although the timetable for that is unclear.

Rising demand from investors outside of Latin America could spark more IPOs, said Wentzel.

Despegar’s CEO Damian Scokin told Reuters, after the company’s New York Stock Exchange debut last month, that he “sensed a strong desire to invest” in companies that provided access to the region’s consumers.

“Certainly we feel that there’s going to be a lot of capital markets activity, whether it be new IPOs, follow-ons or even debt,” he said. “Because there are significant investment opportunities that Argentine and Latin American companies would like to pursue.” ($1 = 3.2439 reais) (Reporting by Dion Rabouin in New York,; Additional reporting by Sheky Espejo in Mexico City, Marco Aquino in Lima, and Tatiana Bautzer in Sao Paulo,; Editing by Christian Plumb and Rosalba O‘Brien)

Mexican minister says prepared to ‘talk to the devil’ if Trump wins

Posted in Uncategorized by dionrabouin on January 27, 2018

NEW YORK (Reuters) – Mexican Economic Minister Ildefonso Guajardo Villarreal said on Wednesday that Mexico was prepared to “talk to the devil” should Republican Donald Trump win the U.S. presidential election in November.

Villarreal gave the response during a forum sponsored by the Americas Society/Council of the Americas in New York that featured the presidents of Peru, Chile and Colombia, with Villarreal standing in for Mexican President Enrique Pena Nieto.

“We cannot afford to risk a very important bilateral agreement,” Villarreal said at the event on the sidelines of the United Nations General Assembly when asked about the possibility of Trump becoming president.

“If we have to talk to the devil to guarantee the safety and future of the Mexican people in the U.S., Mexico will talk to the devil.”

Trump, who is facing off with Democrat Hillary Clinton in the Nov. 8 election, has infuriated Mexicans by vowing if elected to build a border wall with Mexico to keep out illegal immigrants – which he said that country would pay for.

He has also threatened to carry out mass deportations, renegotiate the North American Free Trade Agreement among the United States, Mexico and Canada, and in announcing his candidacy last year, referred to some immigrants from Mexico as rapists and drug runners.

When other leaders at the event were asked about Trump, Peruvian President Pedro Pablo Kuczynski said in a joking manner: “Oh, no, we’re not worried at all.”

He then added: “That’s the thing Trump doesn’t understand. The Latins have helped the U.S. immensely. They have kept the U.S. young … and Social Security that was supposed to go bust years ago is still working because of (Latino immigration).”

Chilean President Michelle Bachelet said: “I just want to give a general perspective: I think the world needs more female presidents.”

The leaders also discussed opening relations with Venezuela, the Trans-Pacific Partnership trade deal and the role of the Pacific Alliance, which includes Colombia, Chile, Mexico and Peru, as a major trade partner with the United States. The United States and 48 other nations are so-called observer states within the alliance.

Reporting by Dion Rabouin; Editing by Sandra Maler and Peter Cooney

Trump’s Central America plan will not boost militarization: Honduras president

Posted in Uncategorized by dionrabouin on January 27, 2018

(Reuters) – The Trump administration’s effort to combat violence and poverty in Central America will not mean greater militarization in Honduras, the country’s president, Juan Orlando Hernandez, said in an interview.

Under a plan formulated by U.S. President Donald Trump’s chief of staff John Kelly when he was secretary of Homeland Security, the United States is seeking to shore up Central America by financing development projects and getting Mexico to do more to stem the flow of immigrants from the region.

Non-governmental organizations and think tanks have voiced concern that the plan, pitched as an effort to boost Central American economic growth, could instead herald a greater militarization in a violent region where coups and gang killings have been commonplace.

Central America is one of the most violent regions on earth, though the murder rate in Honduras fell to 59 killings per 100,000 people last year from 90.4 in 2012.

But the Trump administration has not provided any increase in military support aside from police training and a modest bump in support from USAID, Hernandez told Reuters during an interview in New York.

Still, Honduras’ president says the relationship between the United States and Honduras is “probably better than ever,” noting improved cooperation Hernandez believes will boost investment and security in the Central American region.

“We are closer than before,” Hernandez said. “It is really important for them what’s going on with Central America and we are working together on economic growth, which is very important, investment, creating jobs and we are working together on security.”

Hernandez said the security of Honduras was of a primary interest to Americans, even if they were not completely aware of it.

“We have a saying (in Honduras), ‘If the people in Washington realize that lack of security, lack of preparedness in Central America is dangerous, very dangerous for the U.S. they have to work together with us to create in Central America a region of prosperity, investment, opportunities,’” he said. “That’s going to be one of the best investments of the (American) people, in their best interest and in ours.”

Additionally, Honduras will continue to work with the International Monetary Fund, Hernandez said, provided his government is victorious in this year’s election. The IMF recently finished a review mission in the country.

Reporting by Dion Rabouin; Editing by Christian Plumb and Lisa Shumaker

Tropical Storm Harvey disrupts businesses, but some may benefit

Posted in Uncategorized by dionrabouin on January 27, 2018

Aug 27 (Reuters) – Tropical Storm Harvey is challenging a wide range of industries beyond energy, including insurers, home improvement retailers and automakers, but some sectors may benefit.

The hurricane could weigh on energy stocks, be mixed for insurers and boost home improvement companies, analysts said on Sunday.

Home improvement companies Lowe’s and Home Depot have temporarily frozen prices for lumber and roofing materials at stores in the area affected by Tropical Storm Harvey, even as flooding has forced the chains to close dozens of stores, the companies said on Sunday.

Home Depot has so far announced the closure of 42 stores while Lowe’s has closed 14 stores in Houston and the surrounding area.

“Right now we have to play it by ear just to see what the conditions are going to be in those areas,” said Sarah Lively, a spokeswoman for Lowe‘s. “We are reopening those stores as quickly as possible.”

The companies are preparing for strong demand once the storm has passed and property owners can begin repairs. Both companies said building supplies had already been sent to nearby emergency response centers.

Lively said Lowe’s had already sent “500 truckloads” of supplies to the impacted area. At Home Depot, spokesman Matt Harrigan said preparations began “as soon as the storm was on the radar.”

Companies in other sectors are still assessing the impact of the storm, which washed over manufacturing supply lines and transportation routes that run from Mexico through southern Texas.

Ford Motor Co, General Motors Co and Fiat Chrysler Automobiles NV said on Sunday they had thus far not seen any impact or issues with getting parts across the storm zone but were monitoring the storm closely. The area of Mexico south of the storm zone is a major center for auto parts manufacturing.

Texas is a significant vehicle market, particularly for pickup trucks built by the big three Detroit automakers. In the short term, the storm is likely to hamper operations at dealers. But longer term, ”it seems there has been enough flooding to damage thousands of light vehicles that will need replacing,” said Nick Colas, an independent analyst based in New York City.

BNSF Railway Co. told customers on Friday it was halting train traffic in and out of its yard on Galveston Island, Texas, until further notice, company spokesman Gus Melonas said.

Union Pacific Corp, the No. 1 U.S. railroad, said late last week it would move rail cars in yards prone to flooding to high elevations and would curtail trains operating through areas likely to be hit by excessive winds and rain that will impact operations.

For insurers, the storm could be a mixed blessing.

“Insurers — from a long term point of view they can raise their rates but some insurers, if they have a particular geographic or sector concentration can get really beaten up. Maybe the winners are the companies that have the least damage but the most license to increase their premiums,” said Michael Purves, chief global strategist at Weeden & Co.

Harvey was expected to not have a big impact on the market as a whole.

“Markets, based on Asian trading, appear bullish. So I don’t expect much of an impact on equities,” said Jack Ablin, Chief Investment Officer, BMO Private Bank, a part of BMO Financial Group.

Colas said there would possibly be some chatter tomorrow about the effect of rebuilding on Q3/Q4 GDP, but said that would probably be small. (Reporting by Dion Rabouin and Megan Davies in New York and Joseph White in Detroit; Editing by Sandra Maler)