Amid election surprises, EM investors are bullish on local debt

EM investors pivot towards local bonds: In the wake of election disruptions that have upended the “long-standing” positions of major developing economies’ bond markets, emerging market investors such as Ashmore and Ninety One are shifting towards buying local bonds and relative value currency securities, Bloomberg reports. France’s decision to hold snap elections, for example, sent the EUR to its weakest in a month.

Investors are liking the risk: “We’ve been increasing the frontier risk, through both local bonds and FX derivatives. We like the story in Egypt, we like some of the stories in smaller Latin American names. We’re trying to diversify and not load up,” Christine Reed, a portfolio manager at Ninety One told Bloomberg.

Election “surprises” have triggered the search for alternative return avenues, with the MXN — once favored for carry trades — currently losing investor favor after a bout of volatility following the elections, with concerns that potential economic reforms will increase the government’s influence in the economy. Meanwhile, the Polish PLN is gaining traction for its perceived insulation from political volatility.

Appetite for Turkey’s debt is also on the rise: In Turkey, the post-election economic overhaul, including the central bank’s aggressive rate hikes and investor-friendly policies, have sparked a surge in demand for local-currency assets, with foreign holdings of TRY-denominated bonds jumping tenfold in a year, reflecting investors’ confidence.

What are EMs’ selling points? “We see cleaner positioning as a positive technical factor, but more importantly for us is a country’s monetary and fiscal policy stance, and inflation and growth profiles. Otherwise, we are running the risk of picking up pennies in front of a steamroller,” says Valentina Chen, co-head of emerging-market debt at Mackay Shields.

MARKETS THIS MORNING-

Asia-Pacific markets are mixed on their return from a public holiday, with Japan’s Nikkei up 0.49%, while the Hang Seng is down 1.4% — seemingly unaffected by the rally over on Wall Street, which saw the Nasdaq and S&P 500 hit fresh highs yesterday.

THE CLOSING BELL: TADAWUL-

The TASI was flat yesterday on turnover of SAR 10 bn. The index is down 1.0% YTD.

In the green: Budget Saudi (+10.0%), Fitness Time (+9.3%) and Alarabia (+8.0%).

In the red: Acwa Power (-3.0%), Atheeb Telecom (-2.8%) and SNB (-2.3%).

THE CLOSING BELL: NOMU-

The NomuC rose 1.7% yesterday on turnover of SAR 53.4 mn. The index is up 9.1% YTD.

In the green: Future Care (+11.1%), Edarat (+10.2%) and Alqemam (+9.7%).

In the red: Miral (-8.4%), Leen Alkhair (-6.7%) and Knowledge Net (-6.5%)

CORPORATE ACTIONS-

#1- Our friends at Cenomi Centers will vote on paying SAR 178 mn in dividends for 1Q 2024 at SAR 0.37 per share, on Sunday, 30 June, according to a statement (pdf). The nation’s largest lifestyle centers operator has a dividend distribution policy which aims to maintain a minimum of SAR 0.37 dividend payout per share on a quarterly basis for 2024.

#2- Shareholders of Tadawul-listed Saudi Automotive Services (Sasco) approved the board’s recommendation to increase its capital by 16.7% to SAR 700 mn through a bonus issuance, it said in a disclosure to Tadawul (pdf). They also approved paying SAR 45 mn in dividends for FY 2023 at SAR 0.75 apiece, The distribution date was set for Monday, 1 July.

#2- Shareholders of Nomu-listed Al Modawat Specialized Medical approved the board’s recommendation for dividends of SAR 16.6 mn for FY 2023 at SAR 7 per share, it said in a disclosure to Tadawul. Eligible shareholders will be able to cash out on Sunday, 30 June.

ALSO- The healthcare provider said it received a license for its cardiac catheterization unit in the Tihama region, according to a separate disclosure.

#3- Tadawul-listed fast food franchise operator Alamar Foods saw five private transactions on 6.1% of its issued shares at a value of SAR 114 mn, Aleqtisadiah reported. The transactions were made at the price of SAR 73.3 — which is 4.2% below its trading price of SAR 76.5 — to mark the share price’s lowest level since it IPO-ed on the main market in 2022. Alamar Foods owns and operates popular US pizza chain Dominos across the Middle East, North Africa and Pakistan. It also owns franchise rights.