My first post on Emerging Markets, hope you enjoy.
Zambia non payment of bond coupon last week and wider implications
Zambia announced that it had not made a coupon payment on one of its bonds last week. The Zambian finance ministry appeared to use the justification that it wants to treat all creditors equally. Zambia, along with several other nations have been given relief on “official sector” debt payments under the Debt Service Suspension Initiative (DSSI) and wants bondholders to follow a similar approach. Reuters outlines the DSSI succinctly here:
“The DSSI was approved in April. It offers a temporary suspension of "official sector" or government-to-government debt payments to 73 countries here although only 43 have signed up so far. The six-month extension announced this week will see it run until at least June 30, 2021.”
Reuters Factbox Article “How the G20's Debt Service Suspension Initiative works”
There is a bondholder vote this week on whether or not to accept the government’s request for a six month suspension of interest payments.
There seems to be a bigger issuer at play here as highlighted by Nikkei on whether the debt relief afforded by the DSSI would be used by some EM nations to pay back Chinese lenders. The potential fist-fight here between the IMF/World Bank and China could make the US-China Trade war look like a playground squabble…
Oman Sovereign downgraded for the second time this year
Bloomberg (via Al Jazeera) reported that Oman got downgraded by S&P to B+, outlook stable. Some of the key points:
S&P estimate Oman’s GDP will rise to 84% of GDP by end of 2020 from 60% in 2019
Real GDP will contract by 5% in 2020
IMF now expects Oman’s debt ratio to rise by 18 ppts in 2020, on par with junk-rated Ecuador
The article states that the sultanate’s finances were in trouble even before the breakout of the pandemic. The link between poor financial health prior to the pandemic and current financial distress has been a consistent theme in distressed debt markets as evidenced by over-levered Cinema Chains and Energy Companies.
Oman’s ratings journey has been a long, drawn out decline over the past 25 years or so. In 1996, it was rated BBB- by S&P and went all the way up to an A rating in 2011, when Brent Crude prices went above $120 for a short time. Since then, it has been on a downwards trajectory which accelerated in 2015 as the oil price crash happened.
While I can’t claim to be an expert on Oman, it is apparent that the country did not diversify its revenue stream enough and also did not put away enough money during the good times. The next few years will see further pain for ill-prepared oil producing nations as the cost of renewable energy declines and the technology continues to improve.
What would a potential Biden win do to Emerging Markets?
I feel this is quite an under covered area in the financial press, as most Emerging Markets are. The focus seems to be always on what the US election result do to the S&P 500? Which is fair enough, since it is considered the main gauge of risk sentiment for global markets. I’ve set out an assortment of links below (sourced from a quick Google Search) to see what Market Commentators / Financial Institutions are publicly saying on the matter this year. Please add to the comments section if you have better material accessible to the general public! Thanks!
What the US elections mean for emerging markets - 03 September 2020 UBS
Goldman Sachs Global Macro Research (Oct 1 2020) - GS
EM Investors Start to Put Vote Jitters Behind Them (BBG) October 9th: Yahoo Finance
Outlook on Emerging Markets Oct 2020 Lazard