Brazil is critical corporate debt risk in region

2016 ◽  
Keyword(s):  
Latin American ◽  
Emerging Market ◽  
Corporate Debt ◽  
Sharp Rise ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
The Poor ◽  
Regional Index ◽  
Better Than

Subject Variations in the performance of regional corporate debt. Significance Annual returns on Latin American dollar-denominated corporate bonds fell nearly 9% last year, compared with gains of 19.0% and 3.5% for Emerging European and Asian corporate debt respectively, according to JP Morgan's benchmark corporate emerging market bond index (CEMBI). The poor returns on Latin American corporate debt stem mainly from sharp losses in both the Brazilian component of the CEMBI and the energy and infrastructure sub-sectors of the regional index. Impacts EM equities and currencies will continue to suffer significantly more than bonds. Debt markets -- in particular government bonds -- remain underpinned by demand from local institutional investors. Dollar-denominated EM bonds are faring better than local currency debt. However, the sharp rise in the dollar is endangering the ability of corporates to service their sizeable foreign debts. Despite increasing EM vulnerabilities, there are no signs of a systemic liquidity or solvency crisis similar to the 1990s.

CEE's own risks pose a greater threat than China

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Latin American ◽  
Investor Sentiment ◽  
Government Bonds ◽  
Content Type ◽  
East European ◽  
Asset Class ◽  
Trade And Financial Linkages ◽  
Better Than

Subject CEE markets' resilience to China-induced sell-off. Significance While investor sentiment towards emerging markets (EMs) has deteriorated further because of mounting concerns about China's economy and financial markets, the currencies and government bonds of the main Central-East European (CEE) economies have proved remarkably resilient. Even equity markets, which have suffered sharp falls across the EM asset class, have fared better than in other regions, with Polish, Hungarian and Czech stocks falling by 5.0-6.0% in dollar terms in August, compared with 10.0% and 9.5% for emerging Asian and Latin American shares, respectively. CEE markets' resilience stems from the region's negligible trade and financial linkages to China, relatively strong fundamentals and the sentiment-boosting effects of the ECB's programme of quantitative easing (QE). Impacts EMs' significantly stronger fundamentals make comparisons between the current China-led sell-off and earlier crises in the 1990s misleading. There will continue to be a strong correlation between CEE financial markets and price action in the euro-area. The ECB's full-blown QE should help mitigate the adverse effects of a rise in US interest rates. Very high foreign participation in Polish and Hungarian government debt poses a risk should sentiment towards EMs deteriorate more sharply.

The dollar will determine emerging market asset moves

2018 ◽  
Keyword(s):  
South Africa ◽  
Emerging Market ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
Treasury Bond ◽  
Asset Class ◽  
Capital Outflows ◽  
Firing Line

Subject Emerging market asset gyrations. Significance Emerging markets (EMs) are under strain as the dollar has risen by nearly 4% since the middle of April, triggered by a sharp increase in US Treasury bond yields and increasing evidence of slower economic activity in the euro-area. Argentina and Turkey are in the firing line as they hold a high proportion of their external debt in dollars, but the entire EM asset class has suffered sizeable capital outflows, and year-to-date returns on dollar-denominated and local currency government bonds are now firmly negative. Impacts US sanctions could squeeze Iran’s oil exports, putting upward pressure on the oil price though US shale should cap prices below 80 dollars. Foreign holdings of EM local currency sovereign bonds, at risk of a sell-off, are highest in South Africa, Indonesia, Malaysia and Russia. Bank for International Settlements Chief Agustin Carstens recommends EMs build up reserves as “sometimes whatever comes in … will … go out”. For the Institute for International Finance, China, Argentina, South Africa and Turkey are high risk; Russia, Brazil and Philippines lower. US Fed Chair Jerome Powell has reminded investors that tighter monetary policy has been well signposted and should be “manageable” for EMs.

Dollar trend to shape EM hard currency corporate debt

2015 ◽  
Keyword(s):  
Emerging Market ◽  
Government Debt ◽  
Corporate Bond ◽  
Corporate Debt ◽  
Content Type ◽  
Local Currency ◽  
Hard Currency ◽  
Property Companies ◽  
Asset Class ◽  
Bond Spreads

Subject Outlook for EM hard currency corporate debt. Significance Recent weakness in the dollar, which is currently trading at a two and half month low against a basket of currencies, is contributing to the strong performance of emerging market (EM) dollar-denominated corporate bonds, whose returns in the first four months of 2015 exceeded those on both EM local currency and dollar-denominated government debt. While improving sentiment is mainly due to the recent tightening in Brazilian and Russian corporate bond spreads, the marked deterioration in the credit quality of this asset class, in which Chinese property companies and Russian banks are the largest borrowers, poses significant risks given the fragility of market conditions. Impacts If sustained, the sell-off in global government debt markets could damage sentiment towards EM external and local currency sovereign bonds. The oil price rebound is contributing to the narrowing of spreads on dollar-denominated bonds issued by EM energy corporates. The measures taken by China's central bank to stimulate the economy will buoy sentiment towards the country's vulnerable property companies.

scholarly journals The performance of corporate bond issuers in times of financial crisis: empirical evidence from Latin America

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marc Berninger ◽  
Bruno Fiesenig ◽  
Dirk Schiereck
Keyword(s):  
Latin America ◽  
Latin American ◽  
Empirical Studies ◽  
Corporate Bond ◽  
Economic Conditions ◽  
Corporate Debt ◽  
Market Reactions ◽  
Content Type ◽  
Financing Decisions ◽  
Theoretical Approaches

PurposeThe fundamental theory of Modigliani and Miller (1958) states that a firm's financing decisions are independent from the firm's value. Nevertheless, several empirical studies as well as theoretical approaches from the past decade impugn this relation for real markets with their immanent inefficiencies. However, these questions are rather than academic in nature: Especially the influence of macroeconomic conditions on the market perception of debt issues is from high economic importance, since the need for new liquidity usually becomes even more urgent when the economic conditions worsen.Design/methodology/approachThis paper analyzes the reaction of shareholders to the issue of debt by Latin American firms under special consideration of the macroeconomic sentiment. To do so, a sample of debt issued by Latin American companies between 2003 and 2010 is empirically examined through an event study.FindingsThe authors empirically demonstrate that specifically in Latin America, debt issuing companies show a significant underperformance during recessionary periods and an overperformance during nonrecessionary periods. These findings differ from previous results for mature capital markets. The authors conclude that not only the overall economic conditions matter to explain stock market reactions on bond issues but also the maturity of the corporate debt market plays an important role.Originality/valueThe authors provide first evidence that the previously described changes in the returns on specific stocks depending on the economic sentiment (Baker and Wurgler, 2006) are under certain conditions also present in the market for corporate debt.

International expansion for knowledge acquisition or knowledge acquisition for international expansion?

2019 ◽  
Vol 28 (2) ◽  
pp. 177-200 ◽  
Author(s):  
Clarice Secches Kogut ◽  
Renato Dourado Cotta de Mello ◽  
Angela da Rocha
Keyword(s):  
Knowledge Acquisition ◽  
Latin American ◽  
Multinational Enterprises ◽  
Longitudinal Design ◽  
Emerging Market ◽  
Theoretical Perspective ◽  
Multinational Firm ◽  
International Expansion ◽  
Content Type ◽  
Catch Up

Purpose Starting from the knowledge-based view as a theoretical perspective, this study aims to examine how an emerging market multinational enterprise (EMMNE) engages in reverse knowledge transfer (RKT) processes and how such processes are managed by headquarters. Therefore, this paper captures the perspective of top management concerning RKT and the processes used to create, transfer and integrate knowledge. Design/methodology/approach The study uses a longitudinal design based on the case method of investigation. The case selected for the study was a Brazilian company theoretically sampled for being a domestically, regionally and globally important, information-rich company that operates in an industry in which technology plays a crucial role. The company was also selected for having had asset-seeking motives in at least some of its foreign market entries and for having successfully absorbed foreign-acquired capabilities. Findings The study provides counterfactual evidence to the springboard perspective, considering timing and speed of the internationalization and catch-up processes and the size of acquisitions. The study also highlights differences to other emerging market multinational enterprises, concerning the internationalization trajectory and catch-up moves, and to traditional MNEs, regarding RKT challenges and practices. Research limitations/implications The main limitations of the study relate to the case study method, which does not allow for statistical generalization, although it does support analytical generalization. Originality/value The study contributes to the literature by shedding light on the process by which a Latin American multinational firm developed technological capabilities to compete globally, focusing on the symbiotic, self-nurturing relationship between internationalization processes and technology acquisition and integration processes. Moreover, the work provides novel theoretical insights regarding timing, location, size and execution of the RKT activities. Finally, the paper contributes to the understanding of the relational aspects of the RKT process by focusing on building human relationships as the major force behind knowledge integration and examining the resistance of the acquired companies from developed markets to adopt the parent company’s best practices, or to contribute to its integrated knowledge, when the parent company is an EMMNE.

A value creation perspective on international business in Latin America: directions for differentiation between emerging market multinationals

2020 ◽  
Vol 28 (2) ◽  
pp. 157-175 ◽  
Author(s):  
Michel Hermans ◽  
Armando Borda Reyes
Keyword(s):  
Decision Making ◽  
Latin America ◽  
International Business ◽  
Latin American ◽  
Value Creation ◽  
Emerging Market ◽  
Institutional Characteristics ◽  
Content Type ◽  
A Value ◽  
Internationalization Strategies

Purpose This study aims to draw researchers’ attention to the need to differentiate within the emerging market multinational companies (EMNCs) category. This study focuses on international business in Latin America to argue that the region’s specific institutional characteristics have consequences for within-firm decision-making regarding internationalization strategies. Additionally, the study suggests that to develop a more specific understanding of international business in emerging markets, it is important to consider how decision-makers define value and how they can capture such value. Design/methodology/approach The approach used in this study draws on the bathtub analogy used in micro-foundations research in international business. It proposes a multilevel analysis in which micro-level variation in within-firm decision-making is considered, while accounting for the conditioning effects of macro-level contextual factors. Findings The study identifies characteristics of the Latin American institutional context that are relevant to international business strategies and that potentially differ from other emerging market contexts. These include the pendular shifts to and from pro-market economic reform, fragmented government intervention in business, underdeveloped capital markets, low competition among firms and polarized labor markets. The study explains how these characteristics shape the definition of value and firm strategies to capture value in international markets, and provides examples from firms in different industries. Originality/value This study applies a value creation and capture perspective to international business in Latin America, allowing for the simultaneous consideration of macrolevel institutional characteristics and microlevel variation in decision-making regarding internationalization strategies. This perspective not only helps to distinguish Latin American EMNCs from companies from other emerging market contexts, but also explains the considerable variation in the internationalization strategies of firms within the region.

Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mehmet Emin Yildiz ◽  
Yaman Omer Erzurumlu ◽  
Bora Kurtulus
Keyword(s):  
Emerging Markets ◽  
Stock Returns ◽  
Risk Measures ◽  
Emerging Market ◽  
Cost Of Equity ◽  
Content Type ◽  
The Cost ◽  
Global And Local ◽  
Insight Into ◽  
Better Than

PurposeThe beta coefficient used for the cost of equity calculation is at the heart of the valuation process. This study conducts comparative analyses of the classical capital asset pricing model (CAPM) and downside CAPM risk parameters to gain further insight into which risk parameter leads to better performing risk measures at explaining stock returns.Design/methodology/approachThe study conducts a comparative analysis of 16 risk measures at explaining the stock returns of 4531 companies of 20 developed and 25 emerging market index for 2000–2018. The analyses are conducted using both the global and local indices and both USD and local currency returns. Calculated risk measures are analyzed in a panel data setup using a univariate model. Results are investigated in country-specific and model-specific subsets.FindingsThe results show that (1) downside betas are better than CAPM betas at explaining the stock returns, (2) both risk measure groups perform better for emerging markets, (3) global downside beta model performs better than global beta model, implying the existence of the contagion effect, (4) high significance levels of total risk and unsystematic risk measures further support the shortfall of CAPM betas and (5) higher correlation of markets after negative shocks such as pandemics puts global CAPM based downside beta to a more reliable position.Research limitations/implicationsThe data are limited to the index securities as beta could be time varying.Practical implicationsResults overall provide insight into the cost of equity calculation and emerging market assets valuation.Originality/valueThe framework and methodology enable us to compare and contrast CAPM and downside-CAPM risk measures at the firm level, at the global/local level and in terms of the level of market development.

PiS policy shift puts Polish markets under strain

2016 ◽  
Keyword(s):  
Financial Markets ◽  
Foreign Currency ◽  
Monetary Policies ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
Policy Shift ◽  
Law And Justice ◽  
Rating Downgrades ◽  
High Share

Significance However, the unexpected downgrade of Poland by Standard & Poor's (S&P) on January 15 has focused attention on the financial and economic policy stance of the Law and Justice (PiS) government, in particular, the party's plans for a Hungarian-style forced conversion of foreign currency (FX)-denominated mortgages in local currency contracts. Poland's equity markets have fallen sharply, although the zloty and local government bonds are proving more resilient, despite coming under increasing pressure. Impacts The threat is looming over Poland of further rating downgrades if the credibility of its fiscal and monetary policies is undermined. Emerging Europe's high share of FX-denominated debt, particularly in the south-east, might be a source of financial vulnerability. Non-resident investors are still purchasing Poland's domestic bonds and may even be attracted by the recent rise in yields. CEE's negligible trade linkages with China and favourable status as an oil importer put its financial markets among the most resilient EMs.

Central European local investors will hold on to bonds

2017 ◽  
Keyword(s):  
Emerging Market ◽  
Bond Markets ◽  
Content Type ◽  
Developed Economies ◽  
Local Currency ◽  
Domestic Debt ◽  
The Us ◽  
Debt Market ◽  
Us Presidential Election ◽  
To Come

Significance The lira’s collapse is fuelling outflows from Turkey’s local currency government debt market, as foreign investors reduce their purchases of emerging market (EM) domestic debt amid a sharp sell-off in bond markets following Donald Trump’s upset victory in the US presidential election. Both Hungary and Poland -- hitherto two of the most resilient EMs -- suffered net outflows last year and are likely to come under further pressure as the ECB starts to scale back, or ‘taper’, its programme of quantitative easing (QE) in April. Impacts The dollar’s rise against a basket of other currencies since the US election will put severe strain on EM assets. The surging price of Brent crude is improving the inflation and growth outlook. Higher international oil prices will also reduce the scope for further easing of monetary policy in developing and developed economies.

Global steel market will still face oversupply

2016 ◽  
Keyword(s):  
Latin American ◽  
Large Scale ◽  
Raw Materials ◽  
Emerging Market ◽  
Content Type ◽  
The United Kingdom ◽  
Steel Output ◽  
Steel Consumption ◽  
Steel Market ◽  
The Cost

Subject Slow cuts to global steel overcapacity. Significance In 2015, global steel output fell 2.8% compared to 2014, reaching 1.62 billion tonnes. China's production dropped by 2.3% to 804 million tonnes. In 2015, European benchmark steel prices fell by 27%, from 480 dollars/tonne to 350 dollars/tonne, while Chinese prices suffered a 41% drop, from 440 to 260 dollars/tonne. Margins at many steel-making groups contracted, as steel prices fell faster than the cost of raw materials. Large-scale job losses intensified in Europe, with the United Kingdom and Spain enduring the most of the capacity cuts. Impacts Latin American production could suffer from Asian competition unless sector-specific safeguards are introduced. Renewed dollar appreciation could make dollar-denominated debt unsustainable for many emerging-market steel-makers. BRICS exporters will suffer tariffs imposed by the US Department of Commerce. India will remain the industry's best hope for growth, due to its urbanisation and still low per capita steel consumption.

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