Emerging market bankers have been disappointed this year by the absence of the usual raft of strong corporate and bank names that traditionally tap the bond market in late February once sovereigns have got their activity out of the way in January.
They blame the upcoming presidential elections in Russia, scheduled for March 4, arguing that this has knocked out the top tier Russian borrowers that make up the bulk of the pent-up pipeline.
As far as the bond market is concerned, there are three potential outcomes from the Russian election, which — fairly or not — is expected to see Vladimir Putin returned to his former role having served a term as prime minister.
Russian bonds could rally if investors see few or no protests in the county. Alternatively, a perception of illegitimacy could spark protests and spook investors, sending markets wider — as happened in December last year. Or they could just trade flat.
In the secondary market there has been no clear indication of what investors are expecting. Russian bonds have rallied over the last few weeks, but not as strongly as the rest of the emerging market universe.
Investors are divided. Some are unwilling to take on more Russian exposure at the moment. Many others are not attributing much or any risk to the elections, assuming that any turmoil will not affect bonds' long term performance. They would be willing to buy.
Analysts reckon that ought to be enough to convince the stronger Russian names to price deals before the election rather than wait until the dust has settled. There is a huge pipeline of Russian top tier companies and banks ready and waiting to flood the market, including Gazprombank, Russian Agricultural Bank, Russian Railways and Alfa Bank. The Russian sovereign itself is also due to issue a deal soon.
There is obviously a lot of political pressure on companies to bet on a return of stability and confidence after the elections. But there is no guarantee that this will happen. Borrowers might even be shut out.
They should not take that gamble. Instead, they should be taking advantage of the lack of current supply in the CEEMEA region to soak up some investor demand while they can. Now is the time to get funding done, not heroically hold off for better times that might not come.