With the new fiscal year in Japan promising to settle much of the confusion in the MTN market, dealers are still unsure of how recent uncertainty will affect market growth over the next 12 months. What is clear, according to MTNWeek's dealer survey, is the desire to place less emphasis on Asia and focus instead on more reliable opportunities. The results of the survey show increasing interest in changes closer to home in the form of the market's ever present companion, Economic and Monetary Union (Emu). The sense of urgency and excitement in the market is clear from the 30 houses surveyed. Currencies One dealer suggests: "The market is grossly under-prepared for the advent of the euro." It is hardly surprising that the euro was voted the top currency for the year ahead by dealers polled. Gaining 29.8the vote, the euro is streets ahead of its nearest rival, sterling. The popularity of lire and Czech koruna looks set to continue while emerging markets' currencies in eastern Europe hold better promise for the future. Notably, South African rand has been mentioned as a strong non-European contender and Scandinavian currencies have also made a strong impression. Structures The now familiar trend for credit-linked notes denominated in all currencies has been highlighted again and these structures are expected to be the most popular over the coming year. As issuers and investors gear up for Emu, the focus on credit is accompanied by an increased use of equity-linked notes in all currencies. The most popular currency denominations in credit-linked structures are tipped to be dollars, Deutschmarks and lire. Yen and dollar-denominations have been predicted as two of the most popular for equity-linked notes, with lire and euros also high up on the list. As January 1999 approaches, some dealers have been quick to point out that the market can expect to see eastern European currencies in Emu convergence plays. Some dealers still expect to see pick-up in sterling plays either converging or diverging as Britain assesses its position on Emu. Issuers It comes as no surprise that Imperial Chemical Industries (ICI) has been voted the most exciting issuer of the year. Last year the position went to a name rarely mentioned this year, Household Bank. Banque et Caisse d'Epargne de l'Etat (BCEE) Luxembourg also performed strongly this year, coming in a close second in dealer estimation. The story of ICI is becoming something of a legend in the Euro-MTN market. One of the first British corporates to come to the market, ICI has done well since signing last July. With strict funding objectives, the issuer initially faced scepticism from market players. But the strategy has paid off. Abbey National has maintained its high profile from last year, not only in terms of exciting deals but also as to how responsive the issuer is to structures. Abbey has managed to hold on to its top position from last year, well ahead of other issuers with 20.7the vote. Export Finance has come second with 10.3 Growth regions and sectors Eastern Europe is set to be the biggest growth region for the coming year, achieving 34.6the vote. Eleven percent of dealers were less specific. They have given their vote to emerging markets in general. The vote included references to eastern European countries. Europe in its entirety has been ,and will continue to be, a major growth area, holding 11.5the vote. Opinion on Japan has been qualified by the future developments that are expected to take place as the country attempts to jump-start its economy. That said, it managed to gain 7.7the vote as a growth area. A successful stabilising package for the country is underlined as an essential pre-requisite for its success. The importance of the re-structuring of non-Japan Asia has also been stressed by many dealers with one commenting that proper re-structuring is needed to ensure that the current crisis does not deteriorate into a bigger problem. Nevertheless, 7.7dealers see this as one of next year's growth areas. The corporate sector is seen by the majority of dealers as the growth sector for the year to come, winning a whopping 52.9opinion. Of this sector, European corporates are seen as having the most potential, although some dealers feel that American and British corporates deserve a special mention. Certainly those corporates offering high yields are tipped to receive good demand. The banking sector has gained 11.8the vote and regional institutions have received a brief mention as have municipalities. A common reference made in all responses is to the success of those issuers offering high yield and good credit stories. Investors Again, changes in the investor profile are driven by Emu. The size and diversification of the investor group is set to grow with a number of groups of investors driving the market rather than any single investor type. Many dealers point out that there will be more domestic European investors coming to the market. These investors will be open to structured deals in the future and focused on the credit ratings of issuers. This reflects the growing importance of the name behind the individual paper. Added to this, the diverse investor base is expected to include more pension fund managers and institutions. Meanwhile, there is the expectation that there will be fewer banks investing in the market. With major changes afoot for the year ahead in the Euro-MTN market, many dealers are quick to blow their own trumpet - for example nominating their own namesakes as the most exciting issuers. One market player hits the nail on the head when he sums up the coming year. He says: "This will be the year when the hype gets discovered."
July 28, 2000
