Thursday, 8 January 2009

ING Says Emerging Market Debt Funds ''Moved Into the Black´´

Coincidence this time shouldn't be called a coincidence.

ING strategist David Spegel said in a report distributed yesterday that, for the week ended Jan. 7, emerging market debt funds saw inflows of $13 million, the first inflows since the week ended Aug. 6!!!! Hard currency funds received inflows equivalent to 0.7 percent of assets under management, while local currency fund experienced outflows of 0.14 percent AUM, according to Spegel. The following week Brazil, Colombia, Turkey, the Philippines ... were among countries that sold a combined $5 billion of new debt. The recovery in risk appetite is turning real. We'll see whether the new trend maintains beyond the Obama inauguration next week.

Colombian Stocks, Time to Buy?

In recent days we have seen a mild recovery in stocks indexes across the region. The Colombian stock index IGBC (see graph on the left, taken from the BVC's Web site) has posted a 7 percent rise since the start of December. Some may believe that the worst is past, while others may see this moment as an opportunity to rotate portfolios and sell. It may be too early.

The IGBC has a good correlation with the Dow Jones, which has been lagging behind the Colombian index (presumably due to the sluggish corporate earnings reports and the very disappointing economic numbers in the U.S.) But in previous crises, the IGBC feel even further before establishing itself at a buy point. According to a couple of local strategists I talked to this week, there would be one specific moment when investors have a good opportunity to divest part of their holdings of Colombian stocks. That is the Obama inauguration (next week, exactly on Jan. 20.)


One thing that we might have to observe carefully in Colombia is the performance of earnings. Financial companies seem to be doing just fine, but exporters and Ecopetrol (the state-controlled oil company) might suffer the consequences of the global recession and the sharp decline in commodities. Until after having some news on that, better to wait. On the other hand, we should expect the central bank to be mulling another round of interest-rate reductions (at least 200 basis points before the end of the first half is my bet. What is yours?) But one thing is for sure -- we won't see the same price levels we saw in April, May 2008 again, at least for a few years.



I wanted to take the opportunity to recommend you, dear reader, checking on this very nice, organised and insightful blog about the Colombian financial markets: El Blog de Finanzas y Dinero . It's written in Spanish language (which shouldn't be a problem for most of you) and has a series of polls that are quite useful for those who follow the markets every day and are tired of the typical Reuters/Bloomberg surveys. I don't know how is the writer of this blog, but anyways, go ahead and check it.

Petrobras, Between a Rock and a Hard Place (Portuguese)

This is a story about Petrobras's recent financial problems and political meddling on management. Nice piece! Valor Economico reporter Claudia Schuffner wrote it (the story is in Portuguese. Please let me know if a translation is needed):

Petrobras: entre o equilíbrio financeiro e a pressão política
Cláudia Schüffner, do Rio 08/01/2009

O ano de 2009 será desafiador para o setor de energia, que fechou 2008 consolidando o fim de um dos mais espetaculares ciclos de crescimento de consumo, produção e margens de lucro da historia. Passada a euforia dos preços do petróleo, as empresas precisam administrar produção e investimentos em um contexto de baixa liquidez de crédito e risco em alta. Em um relatório com cenários para 2009 do banco Credit Suisse, intitulado "Religar", os analistas prevêem que uma reversão da situação só será possível com a chegada de um novo ciclo capaz de "religar" a indústria. E isso deverá ser provocado pela demanda de países em desenvolvimento, como China, India e Brasil, mesmo sem a reação de um dos maiores consumidores, os Estados Unidos, onde o consumo de combustíveis apresentou queda drástica em 2008.


Inserida nesse contexto global, a Petrobras enfrenta um duplo dilema. Ela precisa obter recursos em um cenário escasso e aparentemente sem conseguir adiar investimentos bilionários planejados quando o horizonte era de preços em alta e acesso a recursos quase ilimitados para uma empresa do seu porte.


A direção da companhia tem se esforçado para não demonstrar o tamanho do dilema político que está enfrentando. Ela deverá fazer, este mês, o anúncio de um plano de investimentos para os próximos cinco anos. Esse plano deve ser capaz de mostrar ao mercado que ela tem disciplina de capital sem, ao mesmo tempo, tirar da pauta os investimentos de olho nas eleições presidenciais, justo quando o presidente Luís Inácio Lula da Silva planeja movimentar a economia com dinheiro público para minimizar os efeitos da crise. Será uma tarefa hercúlea. As obras da Petrobras são responsáveis por cerca de 35% dos investimentos previstos no Plano de Aceleração do Crescimento (PAC), capitaneado pela ministra da Casa Civil, Dilma Rousseff, candidata predileta do presidente Lula para sua sucessão. No PAC estão incluídos 183 projetos da companhia, cujo investimento total soma R$ 171,7 bilhões, incluindo capital da estatal e parceiros. Entre os projetos dela no PAC está o Complexo Petroquímico do Rio de Janeiro (Comperj) e a Refinaria do Nordeste, ou Abreu de Lima, em Pernambuco, onde é sócia da venezuelana PDVSA.


Os investimentos em ampliação do parque de refino são os mais problemáticos atualmente, em termos globais. O relatório do Credit Suisse vê em 2009 o início de uma "Idade das trevas" para as refinarias independentes (que não produzem petróleo e precisam comprar o produto no mercado), principalmente as dos Estados Unidos, que têm grandes possibilidades de fechar em 2009 e entrarem em falência. Essas empresas enfrentam problemas como a queda do consumo de derivados após investirem para aumentar sua capacidade de refino. Em 2008 o consumo de gasolina nos Estados Unidos caiu entre 5% e 8% dependendo da região, e isso afeta as refinarias do país, já que 48% da produção de uma refinaria típica do país é gasolina. As unidades da Europa também serão atingidas


A Petrobras não é uma "independente" mas uma empresa integrada que produz petróleo e gás, transporta, processa, refina e vende combustíveis no varejo. Para as integradas, o maior desafio em 2009 será reduzir custos para fazer frente à queda de receitas trazida pela retração nos preços do petróleo. Segundo o Credit Suisse, a iniciativa mais relevante será fortalecer a gestão para não deixar a empresa perder valor, o que será uma ação das mais importantes comparada com outras da última década. No caso da Petrobras, o Credit Suisse destaca que além dos altíssimos investimentos, a companhia vai enfrentar um período de crédito mais caro e escasso.


Feita a ressalva de que o mercado de crédito continuará aberto para empresas qualificadas como a Petrobras, que ainda tem espaço no balanço para alavancagem (ou seja, tem pouca dívida), o banco avalia que as atuais condições de mercado deveriam levar a estatal a priorizar alguns projetos e evitar outros que exigem muito investimento. E as quatro novas refinarias - Maranhão (600 mil barris), Ceará (300 mil barris) e Pernambuco (200 mil barris), além da do Rio Grande do Norte, de menor porte - estão entre os investimentos mais indicados para serem adiados, dizem os analistas do Credit Suisse.


Isso porque essas refinarias oferecem baixo retorno e são menos estratégicas comparadas a outros projetos de exploração e produção. Contudo, uma decisão dessa magnitude pode ser difícil para a direção da companhia, dado o impacto político que pode causar um anúncio desse tipo, que vai na direção contrária do que o presidente Lula vem pregando para os empresários privados em 2009.


Por enquanto o único adiamento confirmado é do Plano Estratégico 2009-2013, cujo detalhamento foi remarcado pela terceira vez. A expectativa é de aumento do atual orçamento de investimentos, de US$ 112 bilhões para os cinco anos que se encerram em 2012, já que esse último não inclui o início da produção no pré-sal.
Para alguns projetos nesses campos o Credit Suisse prevê investimento próximo de US$ 16 bilhões no próximo Plano Estratégico. A previsão considera o percentual de participação da empresa nos projetos, onde ela tem sócios, e custos como a construção de oito plataformas do tipo FPSO (orçadas em US$ 56 bilhões) e três sistemas piloto orçados em US$ 9 bilhões - incluído o do campo de Tupi - sendo alocados entre 2013 e 2016. Assim, só uma parte dos investimentos projetados serão computados no plano dos próximos cinco anos.


No momento, extrair petróleo dos campos do pré-sal seria economicamente viável com os preços da commodity na faixa de US$ 35, mas serão necessários vários anos de investimentos antes que a área se transforme em um grande pólo produtor.

Political Risk Bulletin: MST, Bolivia, Colombia

Here is another edition of our political risk bulletin, that you, dear reader, will get used to see from now on. And here come the headlines!

BRAZIL -- MST Militants Start Year Invading Farm in Minas State (click here for link): One thing that will be particularly relevant this year in Brazil is the stance of the MST towards agribusiness and mining amid the current global recession. Yesterday, MST militants invaded a farm located between Uberlandia and Uberaba, known as a key territory for perishables, grain and processed food wholesalers. We know that the MST is rapidly turning into one of agribusiness' main foes. President Lula, at the behest of a faction of his party, has been lenient towards the MST. So, it is likely that we see an upsurge in land invasions this year, amid the worsening of the global recession that will surely hard hit the agribusiness industry.

BOLIVIA -- Gas Exports to Brazil Dropped 30 Percent (Click here for link): Well, Morales thought that demand from Brazil would be endlessly growing. Petrobras has been slowly making some progress in diversifying its own gas sources, and finding new wells. The Argentines, on the other hand, are not good payers -- the bondholders group that sued them for years know that very well. On the other hand, Bolivia depends on natural gas export revenue, and Morales's revolution needs it more, at a time he needs to beef up spending to bolster political support and fend off separatists.

ECUADOR -- Correa Praises Cuba's Human Rights Record (Click here for link): Good God! This is like saying that Guantanamo is a corner of peace. Awful. Correa is alienating some of Ecuador's neighbouring countries and economic partners. The default was the first step towards isolating the country. Expect more harassment against foreign investors in coming months.

COLOMBIA -- Uribe Signs Decree Allowing International Courts to Try War Crimes (click here for link): It took more than six years to President Uribe to do this. The excuse for the delay was to negotiate with war lords their surrender. In the meantime, massacres continued, the president signed a law that pardoned many war crimes to right-wing paramilitary leaders and allowed for their extradition to the U.S. Victims and their families are still waiting for the state to carry out some compensation mechanism.

COLOMBIA -- CIA Knew of Illegal Links Between the Army and Paramilitaries (Click here for link): National Security Archive, an NGO, unveiled in its Web site a report that stated that the CIA knew of links between drug lords, paramilitaries and the Colombian armed forces. The report allegedly helped uncover this policy by the military and led the government to dismiss more than two dozens of army officers. Clearly, this will fuel more questioning into the government's democratic security policy and political noise.

Banco do Brasil DENIES (Again the Magic Word) Holding Votorantim Talks. Let's Guess What Happened!

Today, Banco do Brasil CEO Antonio Lima Neto denied that the lender is in talks to buy rivals (click here for link to Reuters's story.) Banco do Brasil is in no rush to take over rivals, Lima Neto said (probably at a press conference.) ''There are no negotiations under way,´´ the under-fire executive said when asked about it, according to Reuters.

For months, there's been speculation that BB was negotiating a partial or total acquisition of Banco Votorantim's businesses (I heard in November from a good source in São Paulo that they were interested in Votorantim's BV Financeira, a consumer financing company specialised in auto and personal loans.) Folha de S. Paulo today said that taxpayers (ehhmm, sorry, Banco do Brasil) were to spend up to 7 billion reais in the transaction. Thank God Mr. Antonio Ermirio de Moraes (photo, the head of the family that own Votorantim) is in no way interested in seeing Lula and his hungry party comrades scouring for money and posts for their political cronies, or meddling into the group's affairs.

Following the Itau decision to buy Unibanco, private banks grew more conscious of the awful power that the Brazilian government had in their industry. The Itau-Unibanco merger will create Brazil's biggest bank and end more than 200 years of dominance of the domestic market by BB -- that irritated Lula, according to the main newspapers in Brazil. Banco do Brasil can do better by buying lousy-run state banks, and spending billions of reais of taxpayers' money doing bad businesses. While talk that other targets remain being Banco Safra and a number of smaller rivals, it is unlikely that Banco do Brasil buys a rival of importance in coming months.

S&P Downgrades Mexico's Posadas Local Ratings Due to Derivatives Exposure

Standard and Poor's downgraded Grupo Posadas's local ratings to mxBBB+’ from ‘mxA-’. The decision comes in the wake of the company's announcement in November that it incurred a $76 million loss stemming from bad bets in the use of currency derivatives. The outlook is negative, signaling that there is ''uncertainty related to Posadas's open position in currency derivatives, which may generate restrictions in cash holdings if the peso weakens against the dollar.'' The open contracts are linked to debt worth 2.25 billion pesos.

Posadas's foreign currency ratings were kept unchanged at BB- (junk.)


Courtesy of a Good Friend: Peru Shouldn't Sell Bonds Yet!

A good friend is always a good friend. A good friend always give their friends some good advice. He sent me this ... (click here for link.) In a short note (you don't need to write long pieces as long as you have a clear idea of what you want to say), Diario Correo Peru's Karin Acevedo says it all: It's not the right timing for Peru to tap the international bond market.
We all want the best for Peru -- such an example of organised country, it's remarkable the series of advancements in all fronts (expect social inequality, which seems to stay the same ... awful.) But, talking about finances, it's a gamble this thing of bond sales. Former Economy Minister Pedro Pablo Kuczynski says it is ''rather preferable to wait a bit longer until yields come down.'' He might be right. But there's always the other side -- developed economies probably will rush to obtain funding later on the year, confident that yields will come down a bit more. And they will for sure crowd out emerging market countries in the line for bond funding. Does Peru need the money right away? Probably not -- what do you think dear Otto? But spreads over Treasuries for Peru are quite high given the country's investment-grade status (remember it is not that good to be branded IG, all the toxic debt was IG too!) .. and all that.
Peru may sell 30-year debt at some point (it lacks of a proper debt curve and it has to consolidate it.) But waiting might be a good decision.

S&P Expects Sharp Economic Slowdown in Latin America. A Bit Late to Say That, Right?

I just came back from a long bike ride, and found out this on my mailbox. Standard and Poor's analysts finally decided to say it -- that the region will not be spared from the current global environment and growth is set to decline regionwide. That despite Latin America ''being in its best position ever to face a global economic slowdown.´´

S&P projects that in 2009, weighted average real growth in Latin America will be less than half of what it was in 2008, dropping to 2.1 percent from 4.8 percent. Lula, hey, listen to this: ''We do not expect fiscal and monetary policy to meaningfully offset the heavy drag on growth from the deteriorating global backdrop,´´ noted S&P's Lisa Schineller. It's funny that despite the general creed among most economists and analysts that decided that Latin America was the next superb growth story (this was in 2004,) the same analysts are now beginning to say that governments in the region likely won't be able to carry out counter-cyclical fiscal and monetary policies to combat economic downturns. Latin America's long history of high debt and economic instability is weighing on their recommendations.

One thing I used to say when I was working for Bloomberg was that it was a mystery whether the local credit and capital markets would be able to take up the slack left by international borrowers, lend more and provide the support for growth. At the moment (Sept. 2007) I was optimistic it would happen (via gains in scale, acquisitions, their local expertise and the fact that they were winning the war for new depositors in their own countries.) But, unfortunately, it is clear that the domestic financial systems were incapable of lending to companies and individuals in greater scale without suffering capital and scale strains. S&P recognises this fact and incorporates it into its analysis. That is why, in the current scenario of tight global liquidity and cautious allocation of resources, those governments that have the best image before international investors are rushing to obtain new financing (remember the debt sale binge of the past two days?) Well, nothing has changed from 2002 -- I mean, dramatically: governments remain in a much better position than companies to borrow and refinance foreign debt.

One thing that I really believe will play an important role in the coming months -- and that S&P mentions in its report, is the political cycle of 2010. The crisis will make policy making more challenging and especially tricky. Incumbent presidents will do anything at their hands to avert a pronounced deceleration before they hand power to their successors. On the other hand, the political opposition will try to seize many opportunities -- and derail government initiatives -- ahead of elections in 2010. Countries where the political cycle (presidential and/or congressional elections) will take place are Colombia, Brazil, Venezuela ... Check that carefully, dear reader.