NEW YORK, Aug 28 (IFR) - LatAm credit was holding steady in the face of EM’s largest debt outflows in two years, as investors pin their hopes on a stabilization in commodity prices and a delay in US rate hikes.
More short-covering in the oil market sent crude prices higher for a second straight day on Friday, while copper and other metals also extended gains as Chinese stock markets found more stable footing.
“We are seeing some stability in commodities and that is bringing in some buyers,” said a New York based trader.
“It is going to be volatile,” the trader added. “The gorilla in the room is the Fed. If it backs away on rate hikes, then we could see a rally.”
Some of the Brazilian names such as beef credits and pulp and paper companies have already been catching a bid as investors look for bargains in the region’s largest economy.
“We are receiving more and more calls from clients asking about solid Brazilian names not directly related to the corruption scandal,” said Klaus Spielkamp, head of fixed-income sales at Bulltick.
Brazil, however, suffered another blow on Friday when government statistics showed a larger-than-expected 1.9% contraction in economic growth during the second quarter.
Credit markets have largely shrugged off such news, though the Real is weakening and nearing 3.60 again against the dollar.
Nor have markets paid much attention to another spike in EM debt outflows. Some US$4.2bn left the asset class this week, marking its largest exodus since the June taper tantrum in 2013, according to Bank of America Merrill Lynch citing EPFR data.
“EM corporate YTD returns have more than halved in the last month to 1.5%, and we expect further underperformance, on deteriorating fundamentals, low commodity prices and risk of capital outflows back to developed markets on higher Fed rates,” wrote RBS analysts today. (Reporting By Paul Kilby; Editing by Shankar Ramakrishnan)