So far this year, three of the largest countries for CEEMEA issuance have been hit by EM event risk — Russia, Turkey, Nigeria. They made up 44%, 13%, and 6% respectively of all CEEMEA bond volumes in 2013. In Latin America, Argentina and Venezuela have suffered. And we are barely more than two months into the year.
There are elections coming in Egypt, India, Indonesia, Turkey, South Africa and Vietnam that could bring more chaos, not to mention the crisis in Ukraine.
When a country is in turmoil, its economic growth suffers. Russia’s growth was last year at 1.4% — half of what was expected. This year, Fitch and the IMF forecast 2% growth for Russia, but now there is a fear that the Ukraine crisis could drive a recession.
Turkey’s growth last year was around 3.5% according to BNP Paribas, which this year forecasts 3% growth. But the longer turmoil there continues, the more optimistic that number starts to look.
With lower growth and spending, corporates cannot expand and banks’ loan portfolios stagnate. Suddenly there is no need to raise capital.
Investor appetite is no problem. Accounts are cash rich and willing to invest outside the most dangerous areas — the welcome reception that Azerbaijan received on its roadshow this week is testament to that.
Bankers also say that although Promsvyazbank postponed its investor meetings for tier two debt, even this week Russian issuers could have printed Eurobonds, they just didn’t want to.
The problem will come for EM investors when those same issuers don't even look at accessing capital markets because they just don’t need to.