Emerging debt slides with Dow, Brazil in spotlight
Reuters, Friday, October 23, 1998 at 16:04
NEW YORK, Oct 23 (Reuters) - Emerging debt prices slumped
amid low trading volume on Friday in sympathy with U.S. equity
prices, which have become the main gauge of global liquidity,
traders and analysts said.
Emerging market fixed income prices have moved with the Dow
Jones Industrial Average recently, because the Dow reflects
economic and liquidity conditions in the United States, the
world's most important asset market and safe haven for
investors, said Denis Parisien, Latin American strategist at
Dresdner Kleinwort Benson.
Also, Parisien said, the large multinational companies
included in the Dow have investments world-wide,
"These companies earn a significant proportion of their
revenues from overseas and, increasingly, those revenues come
from emerging markets," Parisien said.
"So the Dow makes a pretty good measuring stick as to
whether we will get more of a credit crunch or if we'll get a
soft landing, allowing us to start betting on renewed growth,"
Parisien said.
The Dow was down more than 1 percent in late afternoon
trading Friday.
Capital flow to emerging markets was choked off in August
when Russia defaulted on its debt and devalued the rouble.
Since then, the market has focused on Brazil, Latin America's
largest economy, where the government was expected to reveal an
austerity program following Sunday's gubernatorial elections.
Brazil needs such a program, coupled with help from the
International Monetary Fund, to close its budget deficit, which
is approaching 8 percent of gross domestic product.
IMF support, which could be announced next week, would give
credibility to Brazil's reform effort, said Ronald Ratcliffe,
chief Latin American economist at SG Cowen Securities Corp.
"The return of investor confidence in Brazil would allow
Brazilian interest rates to fall, stemming the country's rising
fiscal deficit," Ratcliffe said.
Earlier in the week, details of Brazil's program leaked
into the market, pushing emerging debt prices higher.
"Then today we saw that Brazil's current account deficit
through September was worse than expected, at 4.37 percent of
gross domestic product," Ratcliffe said. "This reminded people
that Brazil has imbalances on its external accounts as well as
its fiscal accounts, and bonds sold off."
Benchmark Brazil C bonds <BRAZILC=RR> were down 1 to bid
63-3/4 in late afternoon trade and Argentine PAR paper
<ARGPAR=RR> was down 5/8 to bid 70-1/8.
Copyright 1998, Reuters News Service |
