By Wednesday morning, global markets will be digesting the results of the poll. The emerging markets are likely to prove resilient, despite initial volatility in the immediate aftermath of the result. A Clinton victory could pave the way for more issuance.
One EM trader said on Monday that he expects the JP Morgan EMBI to tighten 20bp-30bp on the back of a Clinton win, and widen 50bp-75bp should Donald Trump triumph.
The known pipeline is slim. Gazprom is expected to bring a deal in euros, and Etihad Airways has mandated for a private placement sukuk of intermediate tenor. In Latin America, the largest financial services company in Honduras Inversiones Atlántida will wrap up meetings on Friday for a dollar bond and Colombia’s Technoglass is also lining up a trade.
Both South Africa, and FirstRand Bank have announced non-deal roadshows with the sovereign wrapping up meetings on Friday. South African debt has outperformed of late and it may look a tempting opportunity to issue new debt, especially given recent events in Turkey which have seen investors withdraw funds. “Both could benefit from the sell-off in Turkey,” said a London based syndicate official.
A rally in spreads could also tempt issuers to lock in pre-funding ahead of any US Federal Reserve decisions on US rates, or change to the European Central Bank's monetary policy, but bankers said that investor appetite is diminished coming into year-end and, unless issuers are willing to pay up, it is best to wait until 2017.
“We have six transactions in the pipeline that the clients would like to do this year,” said one London based EM syndicate banker. “But we may push back on some of these. Investors are more defensive, and have had good P&L, and won’t really stick their necks out to take on risk.”
With a US rate hike on the cards in December, an Italian referendum on December 4, and the next European Central Bank meeting on December 8, another banker said that issuers were keen to pre-fund before any rise in funding costs.
“The main driver is pre-funding,” he said. “They want to get the job done and are seeing a two or three week window. They’re worried about the emergence of possible risk events over the New Year shutting the market in January. Putin, Erdogan and Saudi are all possible risks. They have their docs ready now and want to go to market.”
“Issuers will have to pay up to get a deal done and there are only really three weeks in which to print a trade before the US Thanksgiving holiday on November 24,” he said.
A third EM syndicate banker agreed that after a strong year, investors were more willing to take profits than add risk. “They’ve had a good run so why take the chance. I don’t expect much supply. London based investors are being a lot more sensitive around price movements.”
Luckily EM issuers do not have much funding to do. EM borrowers have had November 8 etched in their minds since the beginning of the year. In both Lat Am and CEEMEA markets, borrowers made sure that their funding needs were satisfied well in advance.
Year to date CEEMEA volumes stand at $150bn, according to Dealogic, far surpassing the $86.3bn printed in the whole of 2015. October was the busiest month of CEEMEA on record with borrowers raising $37bn of euro and dollar bonds.