Professional Documents
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Trategist Overeign: Highlights
Trategist Overeign: Highlights
Trategist Overeign: Highlights
JUNE 8, 2001
THE
Sovereign
Strategist
Latin America
Asia
Europe/M.E./Africa
212-526-7036
212-526-6310
44 (0) 207-260-1767
HIGHLIGHTS
Moodys new sovereign ceiling policy will have broad-
Contents
Market Strategy
Lets Play
the Ratings Game ....................... 3
Recommended
Sovereign Weightings ............... 8
Recommended Assets ............. 12
Economics
Argentinas
Megaswap:
A Post Mortem .......................... 13
Peru:
Here Comes the Sun? ............... 17
bp
Nigeria
1,400
EM-Credit
HY-Credit
ICBI-Credit
1,200
2,474
Russia
1,968
Philippines
1,000
1,132
Colombia
800
972
Indonesia
-109
600
Brazil
-307
Peru
-317
400
200
Argentina
-538
0
1/94
1/95
1/96
1/97
1/98
1/99
1/00
1/01
-1,000 -500
0 bp 500
239.0
2
EM
HY
Credit
Mexico
61.7
Venezuela
36.8
Nigeria
32.4
Indonesia
-0.1
Peru
-3.7
Brazil
-53.0
Argentina -129.8
-1
1-Mo
3-Mo
6-Mo
-180
YTD
-90
0 bp
90
%
9
%
12
EM
HY
Credit
180
270
EM
10
HY
Credit
8
6
4
2
0
MTD
3-Mo
6-Mo
YTD
1-Mo
3-Mo
6-Mo
Lehman Brothers
June 8, 2001
MARKET STRATEGY
Lets Play the Ratings Game
A big change in
rating agency policy pushed
spreads tighter.
We expect to see a number of emerging market corporates and quasisovereigns trading through their relevant sovereign benchmarks. Sovereigns might also benefit as a second-order market effect.
As much as sovereign investors like to malign the major rating agencies, the fact
is that the agencies can at times meaningfully influence market spreads. Moodys
announcement that it is reviewing the policy by which it has constrained corporate
foreign currency credit ratings to the foreign currency rating of the country of
domicile (the so-called sovereign ceiling) is a case in point. The notion that at least
38 issuers may soon be rated higher than the country in which they are based caused
the spreads of these issuers to rally significantly. It appears to us that there is room
for the spreads of affected issuers to tighten further.
Under this new more flexible policy, Moodys will assess first the likelihood with
which a particular sovereign will impose a broad debt moratorium in the event of
a sovereign default. If there is a near-zero risk of a broad moratorium, then, in
Moodys line of thought, it follows that the foreign currency rating of a nonsovereign issuer should not be constrained at all by the sovereign ceiling. Indeed,
June 8, 2001
Lehman Brothers
MARKET STRATEGY
in this case, the foreign currency rating of the issuer should converge to its standalone credit quality, as reflected by its local currency rating.
In countries in which Moodys is less than fully convinced that no broad
moratorium will be imposed, it will look at specific issuers within a country to
assess the likelihood that they, individually, will be spared from any foreign
exchange restrictions. The characteristics that Moodys will evaluate to assess the
likelihood of exemption from foreign exchange restrictions include:
The bottom line of the policy change is that Moodys will now rate a broad group
of international issuers somewhere between the issuers local currency rating and
the foreign currency rating of the country of domicile. As Figure 1 shows, this
rating band can be quite wide for some issuers.
MARKET IMPACT
Corporate and
quasi-sovereign spreads
could tighten further.
Lehman Brothers
June 8, 2001
Figure 1.
Argentina
Telefonica de Argentina S.A.
YPF S.A.
Sovereign Issuer
Foreign
Local
Currency Currency
Rating
Rating
B2
B2
B2
B2
A3
Brazil
Banco ABN Amro Real S.A.
Banco AGF Braseg S.A.
Banco Barclays e Galicia S.A.
Banco Bilbao Vizcaya Brasil S.A.
Banco Bradesco S.A.
Banco Citibank S.A.
Banco de Investimentos CSFB Garantia
Banco do Brasil S.A.
Banco Itau S.A.
Banco Sudameris Brasil, S.A.
BankBoston Banco Multiplo S.A.
Lloyds Bank Plc (Brasil)
Unibanco-Uniao de Banc. Bras
Banco Safra S.A.
Banco Votorantim S.A.
Petroleo Brasileiro S.A. - Petrobras
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
B1
Chile
Banco Santiago
Banco del Estado de Chile
Banco Sud Americano
Baa1
Baa1
Baa1
Baa1
A1
Estonia
AS Hansapank
Baa1
Baa1
A1
Hong Kong
Hongkong and Shanghai Bank Corp.
A3
A3
Aa3
India
ICICI Ltd.
B1
Baa1
Sovereign Issuer
Foreign
Local
Currency Currency
Rating
Rating
Ba2
Ba2
Ba2
Latvia
Latvijas Unibanka
Baa2
Baa2
N/A
Lebanon
Banque Audi
Byblos Bank
BLOM Bank
B1
B1
B1
B1
B1
Malaysia
Petroliam Nasional Berhad
Baa2
Baa2
A3
Mexico
Banco Nacional de Mexico, S.A. (BANAMEX)
Banco Santander Mexicano, S.A.
BBVA - Bancomer, S.A.
Coca-Cola FEMSA, S.A. de C.V.
Petroleos Mexicanos
Telefonos de Mexico, S.A.
Baa3
Baa3
Baa3
Baa3
Baa3
Baa3
Baa3
Baa1
A2
South Africa
Telkom SA Ltd.
Baa3
Baa3
A2
Turkey
Turkiye Vakiflar Bankasi TAO
B1
B1
B3
Venezuela
Bariven S.A. (guaranteed by PDVSA)
B2
B2
B3
Moodys has not published local currency ratings for all issuers
some corporate issuers that have traditionally traded wider than their relevant
sovereign benchmark may find themselves trading well inside. This may also be
the case for certain quasi-sovereigns that have ample access to foreign exchange,
are well integrated into global supply and demand chains, and are of critical
importance to the national economy. Petronas, Pemex, and Petrobras are good
examples of such issuers.
There is a second order effect as well. If Moodys announcement means that a
broader range of emerging market entities will have easier and cheaper access to
international markets, it follows that this should have positive macroeconomic
effects. The sovereign marketplace was quick to catch on to this, and sovereign
spreads in places such as Mexico, Argentina, and Brazil also tightened on the news.
Indeed, the news helped to consolidate the growing perception that the emerging
market asset class is finally facing a brief respite from the massive volatility of the
past few months.
June 8, 2001
Lehman Brothers
MARKET STRATEGY
In Bulgaria, we recommend that investors use the recent rally to trim their
positions and move to a neutral weighting. Spreads had been wide because of
election concerns, but tightened as uncertainty about the likely electoral winner
and his economic policy (and team) receded. We now expect the market to take
a breather as focus turns to post-election dynamics and negotiations between the
main parties. Although asset prices remain lower than in September 2000
(before the market began focusing on the elections), we think near-term upside
is limited, given the post-election uncertainty.
Figure 2.
18
16
14
12
11/3/2000
Lehman Brothers
12/15/2000
1/26/2001
3/9/2001
4/20/2001
6/1/2001
June 8, 2001
June 8, 2001
Lehman Brothers
Ratings
LATIN AMERICA
Recommendation
Dedicated
EMG
ICBI
Date of
Weighting
Rationale
Argentina
B2**/B**
Neutral
na
28-Mar-01
Brazil
B1/BB-
Overweight
na
10-Sep-00
Chile
Baa1/A-
na
Neutral
12-Jan-01
Domestic demand should recover later this year, assisted by lower interest rates. The sovereign looks
fairly valued; high-grade investors with exposures to
corporates should consider swapping to CAF or Mexico.
Colombia
Ba2/BB**
Neutral
Neutral
05-Jan-01
Costa Rica
Ba1*/BB*
Neutral
Outperform
05-Jan-01
Despite the recent economic slump, decent fundamentals and reasonable pricing make this a good play
for crossover investors.
08-Jun-01
With the VAT reform now implemented, the IMF disbursing funds, and the OCP pipeline moving toward
the construction phase, a neutral position seems warranted.
Ecuador
Caa2/CCC+** Neutral
na
(From
Underweight)
Mexico
Baa3/BB+* Overweight
Outperform
02-Mar-01
Mexico continues to attract interest from both crossover and dedicated investorsnot to mention foreign
direct investors. Moodys change to its sovereign ceiling policy could have further positive market impact on
Mexican quasi-sovereign and corporate issuers and
help drive sovereign spreads tighter.
Panama
Ba1/BB+
Neutral
Outperform
02-Mar-01
Peru
Ba3**/BB-
Underweight
na
05-Jan-01
Trinidad
& Tobago
Baa3/BBB-
na
Outperform
13-Oct-00
Uruguay
Baa3/BBB- Underweight
Underperform
16-Mar-01
Venezuela
B2/B
na
08-Jun-01
Recent rhetoric by President Chavez has been particularly disturbing. While the political environment bears
watching, Venezuelas ability to service debt is high.
Take advantage of the wide spreads and the high carry
for now, but dont overstay your welcome!
Neutral
(From
Overweight)
Lehman Brothers
June 8, 2001
continued
Ratings
Recommendation
Dedicated
EMG
ICBI
Date of
Weighting
China
A3/BBB
na
Neutral
01-Dec-00
Hong Kong
A3/A+
na
Neutral
31-May-00
India
Ba2*/BB
Overweight
Neutral
28-Apr-00
Indonesia
B3/B-
Underweight
na
29-Mar-01
Korea
Baa2/BBB
Neutral
Neutral
18-May-01
Malaysia
Baa2/BBB
Underweight
Outperform
05-Jan-01
Philippines
Ba1/BB+
Neutral
Underperform
26-Oct-00
We have been overcautious on our Philippine recommendation, although fundamentals (and particularly
the fiscal situation) remain challenging. The new administration has made great strides toward rectifying
some of the major problems, which could result in
further outperformance if prudent policies are followed. First, however, Pres. Arroyos loyalists need to
score a victory in the recently held (but still unconfirmed) congressional mid-term elections..
Thailand
Baa3/BBB- Underweight
Underperform
31-May-00
Rationale
ASIA
June 8, 2001
Lehman Brothers
Ratings
Recommendation
Dedicated
EMG
ICBI
Date of
Weighting
Rationale
EUROPE
Bulgaria
B2/B+*
Croatia
Baa3**/BBB-**
Neutral
(From
Overweight)
na
8-Jun-01
Neutral
Neutral
01-Dec-00
Czech Rep.
Baa1/A-
na
Underperform
30-Aug-00
Greece
A2/A
na
Neutral
09-Feb-00
Hungary
A3/A-
na
Outperform
05-Jan-01
Continues to be the strongest candidate for EU accession. We recommend Hungary as a credit that offers
defensive value against a potential sharp slowdown in
the U.S.
Poland
Baa1/BBB+ na
Neutral
11-May-01
Credit outlook is on an improving trajectory. Nevertheless, Hungarys credit fundamentals remain strong
relative to Poland and warrant tighter spread differentials between the two credits.
Russia
B2/B-
Overweight
na
09-Mar-01
Slovak Rep.
Ba1*/BB+*
Underweight
Outperform
05-Jan-01
Slovenia
A2/A
na
Neutral
03-Feb-00
Slovenia is a solid credit with strong economic fundamentals and a low level of indebtedness. Current
spread levels offer limited near-term upside.
Lehman Brothers
10
June 8, 2001
continued
Ratings
Recommendation
Dedicated
EMG
ICBI
Date of
Weighting
Israel
A2/A-
na
Neutral
16-Feb-01
Qatar
Baa2/BBB+* na
Neutral
11-May-01
We continue to see improvements in economic fundamentals on the back ofstrength in the natural gas sector. However,at current spread levels, the good news
is priced in.
Turkey
B1**/B-
Neutral
na
09-Apr-01
Morocco
Ba1/BB
Neutral
na
05-May-00
Nigeria
NR/NR
Underweight
na
05-May-00
South Africa
Baa3*/BBB- Underweight
Underperform
12-Jan-01
Rationale
MIDDLE EAST
AFRICA
June 8, 2001
11
Lehman Brothers
Recommended Assets
Country
Position
Asset
Current Level
Comments
LATIN AMERICA
Argentina
(Neutral)
Buy
Sell
08 12 and 18
Short and Long Ends
Brazil
(Overweight)
Buy
Sell
24
27
Buy
Sell
C
DCB
Buy
Sell
09
11
3 bp
Buy
Sell
08
06
64 bp
Buy
Sell
20
PDI
Buy
Sell
IRB
PDI
Buy
Sell
29p06
11
Trinidad
& Tobago
(Overweight)
Favor
T & T 20
Venezuela
(Neutral)
Buy
Sell
Par
DCB
350 bp
Buy
Sell
30
10
120 bp
The whole Russian Eurobond curve has rallied in significantly over the past week and has continued to steepen.
The spread differential between Russia 10s and Russia
30s is currently at its all-time widest of 120bps. We expect the curve to flatten ether under bullish or bearish
scenarios. We therefore recommend holders of Russia
10s to switch into the Russia 30s (the only Russian Eurobond to trade wide to Brazil) or to go long the spread
between Russia 10s or Russia 30s.
Mexico
(Overweight)
Panama
(Neutral)
Pick 9 bp
in yield
Pick yield, take out 8.75 points, stay on same part of the
curve.
Prefer fixed-coupon bonds over floaters.
23 bp sprd
-27 bp yld
EUROPE
Russia
(Overweight)
Note: Outright recommendations of the form Favor imply relative value offered by an asset in the context of our sovereign weighting call.
Lehman Brothers
12
June 8, 2001
ECONOMICS
Argentinas Megaswap: A Post Mortem
The debt exchange implemented last week was successful and should help to kickstart the economy and restore the outlook. Because, in our opinion, Argentina is
not inherently insolvent, but rather the victim of a confidence trap, restoring
confidence is the only way to improve creditworthiness and promote real growth.
Thanks to the swap, fears of default in 2001 and 2002 will soon dissipate.
Although the government paid handsomely for the exchange, if output does
recover and the fear of default vanishes, as we expect, the end will have justified
the means.
The government issued $30.4 billion of new bonds and took away
$28.1 billion of existing ones.
The average life of the new bond portfolio is 2.8 years longer than the old
debt, while the average yield is 35 bp higher.
The NPV gain for the government was $103 million before fees and
-$50 million after.
Cash flow relief from deferred interest and amortization payments will
reach $16 billion in 2001-2005 and $7.8 billion in 2001-2002.
In short, all the goals sought by the government with the swap were achieved. The
headline figure exceeded expectations by $10 billion (50%). Cash relief was in line
with official projections. And despite the extended duration, the yields of the new
bonds (14.4%-16.0%) were practically the same as those of the retired debt.
Before the swap, the yield curve was inverted, reflecting the fact that fears
of default were actually short term. This allowed the government practically
to extend duration without increasing yields. After the swap, the yield curve
has flattened.
June 8, 2001
13
Lehman Brothers
ECONOMICS
Indeed, as shown in Figure 1, cash-flow relief stemming from the swap is followed
by an increase in the debt service burden, particularly in 2007-2008.
However, looking at this graph and concluding that the megaswap is nothing but
smoke and mirrors would be analytically and fundamentally wrong. First, the
only legitimate way to value the stream of cash flows represented in the figure is
by calculating its NPV. And as mentioned earlier, this value is negative, indicating
a net reduction in net service payments due to the swap.
Second, Argentinas national government is not insolvent. If it were, the authorities could as well throw in the towel and default. But why should they? The fiscal
responsibility law mandates a reduction in the fiscal deficit from $6.5 billion in
2001 (2.3% of GDP) to zero in 2005. This is not a posture but the law. And just as
the convertibility law does not allow the president to devalue, the fiscal responsibility law does not allow him to run a fiscal deficit higher than the one established
in that norm for each year.
To ensure compliance with the fiscal responsibility law, this year, the government
has enacted fiscal reforms worth $3.7 billion, including the introduction of a tax
on financial transactions. In the future, the necessary fiscal savings will be
generated by state reform and by changes in tax administration and the tax code.
Of course, no sustained improvement in public finances is possible without
growth, and the fact that the latter has been absent during the past three years is
what influences doomsayers expectations. But far from a reason to trash the
megaswap, economic stagnation reinforces the case for it. Such a transaction
reduces rollover risk, improves credit access, and diminishes lending costsall
crucial to growth.
A second rationale for the megaswap is that it allows the government to hedge
against the fiscal cost of social security reform. To be sure, the privatization of
the public pension system, which took place in 1994, is challenging government
fundraisers. This is because $4.5 billion of worker contributions is shifted every
Figure 1.
20
15
10
5
0
-5
-10
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031
Lehman Brothers
14
June 8, 2001
year from the government to the coffers of the private pension administrators.
The good news is that in a few years time, this situation will reverse, as the
significance of public pensions in the national budget (currently 36%) will start
to fall.1
For this reason, pushing debt service forward in time through a megaswap such
as the one implemented by Argentina on June 1 is not a futile exercise but a sound
financial strategy. The objective is not just to buy time (and certainly not to
postpone the inevitable) but, actually, to increase the likelihood of debt repayment. In fact, now that a megaswap has been executed successfully, it is only
natural to expect there will be more in the future.
NOW WHAT?
Having lost fluid access to voluntary financing in the last quarter of 2000,
Argentina managed to avoid default thanks to multilateral and special (mostly
non-market) local financing. Borrowing requirements after the swap are
The government is also planning to implement a second-generation reform of the pension system to
reinforce its medium-term finances.
Figure 2.
CF Deficit
Amortization
Loans
Bonds
Other
Total
June 8, 2001
15
2002
3.2
16.8
8.6
8.2
1.0
21.0
2003
2.0
16.3
7.1
9.2
1.0
19.3
2004
0.9
18.3
6.5
11.8
1.0
20.2
2005
-1.3
18.3
6.2
12.1
1.0
18.0
Lehman Brothers
ECONOMICS
$6.1 billion in 2H01 and $21 billion in 2002. However, international organizations are scheduled to disburse $5.8 billion this year and $7 billion next year.
In addition, in 2002 the government will be able to:
Defer repayment of blindaje loans to the Fund for one year (this would save
$2.4 billion at the expense of 2004).
Roll over a $2 billion bond issued this year, which banks hold against
liquidity requirements.
Assuming fiscal targets are met in 2H01 and 2002, the government has to raise only
$10 billion from voluntary sources between now and December 2002 (in addition
to the rollover of Letes, which represents another $5 billion). This is not an
impossible task, considering that pension funds can absorb $3 billion and the
rollover of amortization and interest payments in the local market can easily take
care of the rest.
Finally, while the financing challenges in 2003 and beyond are significant, they
can be ameliorated through a combination of multilateral refinancing (new IMF
programs followed by other multilaterals to roll over existing debt) and liability
management (i.e., more megaswaps after 2002). In the final analysis, what matters
from the point of view of Argentinas creditworthiness today is not what Argentina
has to pay three years from now (this cannot be determined accurately anyway),
but its ability to grow and preserve fiscal discipline.
CONCLUSION
The main objective of the megaswap was to push amortization and interest
payments forward in time and, in particular, away from 2001 and 2002, to obtain
liquidity relief and, hopefully, reduce sovereign spreads by averting near-term
default risk. In this sense, the government was successful. Moreover, judging from
the remaining financing needs for this year and next, we conclude that the
government can easily avoid default during this period. This is necessary for the
public sector to recover creditworthiness, which, in turn, is essential for the
economy to grow.
Joaquin Cottani 212-526-1979
jcottani@lehman.com
Figure 3.
Total Needs
- Prefinancing
- Multilateral Loans
- Special Transactions
- Deferred IMF Payment
- Voluntary Market
Financing Gap
Lehman Brothers
16
Done
18.0
2.1
3.9
4.3
0.0
1.6
6.1
Pending
6.1
0.0
5.8
0.0
0.0
4.3
-4.0
2002
21.0
4.0
7.0
2.0
2.4
5.6
0.0
June 8, 2001
ECONOMICS
Peru: Here Comes the Sun?
After a volatile election and months of malaise, a break in the clouds. Mr. Toledos
victory marks a turning point for democracy and perhaps for the economy, as
reflected in the bounce in both the bond and the equity markets. Yet those who expect
a speedy recovery may be disappointed. With apprehension so deeply entrenched on
the demand side, the new president is unlikely to engineer a large enough confidence
shock in the short run. Recovery will be slow and not without further pain.
June 8, 2001
17
Lehman Brothers
ECONOMICS
congress must be immediate to dispel the lasting fear that the current lack of
majority in the legislature will prevent the Toledo administration from passing
sorely needed structural reform.
Considerable time will be required to provide these assurances, restore lost
confidence, and unlock seemingly frozen investment and consumption in the local
market. Convincing foreign investors to risk capital in Peru may take even longer.
Lehman Brothers
18
June 8, 2001
30
25
20
15
EMG
AMERICAS
EUROPE
MID EAST
AFRICA
ASIA
AMERICAS
72%
10
5
AFRICA
4%
0
MTD
3-M
6-M
MID EAST
ASIA
5%
4%
YTD
-5
EUROPE
15%
Year-to-Date (%)
6.5
Peru
6.0
Ecuador
2.4
AMERICAS
1.5
Venezuela
Costa Rica
9.1
Uruguay
9.0
Mexico
5.8
5.5
Colombia
0.9
Peru
Panama
0.9
AMERICAS
0.6
Costa Rica
June 8, 2001
3.7
1.2
Brazil
0.2
Uruguay
7.2
EMG
1.2
Mexico
9.4
Venezuela
2.5
EMG
11.4
Panama
2.6
Brazil
13.5
Colombia
3.8
Argentina
16.9
Ecuador
-0.2
Argentina
1
-5
19
10
15
20
Lehman Brothers
Year-to-Date (%)
5.1
Russia
4.6
EUROPE
29.5
Nigeria
29.4
25.7
EUROPE
2.5
EMG
Russia
14.3
Bulgaria
2.2
AFRICA
Turkey
2.2
Bulgaria
8.3
Morocco
8.2
8.1
1.4
MID EAST
Lebanon
0.2
S. Africa
Slovak Rep.
0.2
Slovak Rep.
Croatia
0.1
EMG
Morocco
0.1
Croatia
5.4
Nigeria
0.1
Turkey
5.0
AFRICA
0.1
MID EAST
-1
7.2
4.0
3.5
Lebanon
-0.1
S. Africa
7.6
10
15
20
25
30
Year-to-Date (%)
EMG
2.5
Philippines
Philippines
0.7
15.1
Kazakhstan
10.2
Kazakhstan
0.7
Thailand
7.4
ASIA
0.7
EMG
7.2
Thailand
0.4
Indonesia
ASIA
0.2
0.0
6.1
Indonesia
0.5
Lehman Brothers
1.0
1.5
2.0
2.5
3.0
1.7
0
20
10
15
20
June 8, 2001
Americas
Index
5,250
Nasdaq
S&P rescaled
EMG Index (R)
4,625
Index
1,400
900
850
4,000
800
3,375
750
2,750
700
2,125
650
600
1,500
1/00
2/00
4/00
6/00
8/00
10/00 12/00
2/01
4/01
900
Americas
1,300
840
1,200
780
1,100
720
1,000
660
600
900
6/01
1/00
E. Europe
2/00
4/00
6/00
8/00
10/00 12/00
2/01
4/01
Asia
Index
95
Index
260
900
E.Europe
EMG Index (R)
830
75
760
65
690
55
620
45
4/00
6/00
8/00
10/00
12/00
2/01
4/01
860
220
800
200
740
180
680
160
620
140
560
500
120
550
2/00
920
Asia
EMG Index (R)
240
85
1/00
6/01
1/00
6/01
2/00
4/00
6/00
8/00
10/00 12/00
2/01
4/01
6/01
Regional Equity Industry Source: Morgan Stanley Capital International Emerging Markets Index Series.
Currencies
Brazil Real
Polish Zloty
Index
Index
900
5.00
850
4.75
850
2.17
800
4.50
800
2.04
750
4.25
750
1.91
700
4.00
700
1.78
650
3.75
650
600
3.50
2.43
Bzl Real
EMG Index (R)
2.30
1.65
1/00
2/00
June 8, 2001
4/00
6/00
8/00
10/00 12/00
2/01
4/01
1/00
6/01
21
900
Pol Zloty
EMG Index (R)
600
2/00
4/00
6/00
8/00
10/00 12/00
2/01
4/01
6/01
Lehman Brothers
Downgrade/Upgrade Ratio
Moodys
S&P
Average
500,000
-500,000
1
0
-1,000,000
3/92
3/93
3/94
3/95
2/96
2/97
2/98
2/99
2/00
2/01
3/93
9/94
3/96
9/97
3/99
9/00
14%
10.3
12%
10.0
10%
9.7
8%
6%
9.4
4%
9.1
2%
0%
3/90
8.8
3/92
3/94
3/96
3/98
3/00
1/97
Lehman Brothers
Current
Index OAS
145
175
147
177
184
117
118
210
100
169
288
85
136
205
335
195
MTD
-45
-48
-16
-57
-49
-45
-41
-11
-30
-41
-64
-2
-5
-7
-7
-4
-27
-49
-61
-139
-119
1/99
1/00
Moodys
Baa2
13
Baa3
12
Ba1
11
Ba2
10
Ba3
9
B1
8
B2
7
B3
6
YTD
-4
-5
-2
-7
-5
-3
-4
-2
-5
-8
-6
1/98
1/01
S&P
BBB
13
BBB12
BB+
11
BB
10
BB9
B+
8
B
7
B6
22
June 8, 2001
Economic Indicators
Real GDP
(% Change y-o-y)
AMERICAS
Argentina
Brazil
Chile
Colombia
Ecuador
Mexico
Panama
Peru
Venezuela
EMEA
Bulgaria
Croatia*
Czech Republic
Hungary
Israel
Poland
South Africa
Russia
Turkey**
ASIA
China
Hong Kong
India
Indonesia
Malaysia
Philippines
Korea
Thailand
Inflation
(% Change y-o-y)
Exchange Rate
(End Period)
2000
2001
2002
2000
2001
2002
2000
2001
2002
2000
2001
2002
-0.5
4.5
5.4
3.0
2.5
7.2
2.7
3.5
3.2
1.0
3.6
3.5
3.0
4.0
2.4
3.0
1.0
4.0
3.0
4.2
5.0
4.0
4.0
4.4
3.5
4.0
2.5
-0.8
6.0
4.5
8.7
91.0
9.0
1.4
3.7
13.4
-0.5
5.5
3.5
8.3
28.9
6.7
3.0
2.5
12.2
1.0
3.5
4.0
8.5
20.0
5.5
1.8
4.0
30.0
-3.5
-4.1
-1.3
-0.2
8.5
-3.1
-9.2
-3.0
12.0
-4.9
-4.5
-1.5
-2.0
-2.0
-3.5
-8.0
-3.2
7.0
-3.7
-3.5
-3.0
-3.0
-4.0
-2.8
-7.0
-3.8
3.0
4.5
2.9
3.1
5.2
4.8
4.1
3.1
7.7
7.2
5.0
3.0
3.5
5.2
4.0
3.5
3.4
4.0
-7.5
4.0
3.0
3.8
5.0
n/a
4.5
3.8
3.5
4.0
10.1
4.7
3.9
9.8
0.9
10.2
5.3
20.2
40.0
6.0
4.5
4.6
9.0
2.5
6.3
6.4
16.0
65.0
5.0
4.0
4.8
7.5
n/a
6.3
6.6
9.0
35.0
-4.8
-5.0
-4.8
-3.3
-1.0
-6.3
-0.3
18.5
-5.0
-4.0
-4.5
-6.5
-4.5
-0.9
-5.5
-0.2
12.7
2.5
-3.5
-4.0
-7.0
-4.0
n/a
-5.5
-0.9
9.3
-2.0
1.82
7.3
37.6
281.1
4.20
4.14
7.59
28.2
685
8.0
10.5
6.0
4.8
8.5
4.0
8.8
4.3
7.5
4.0
5.8
3.8
3.9
2.5
4.5
3.3
8.0
5.5
7.0
4.5
6.7
4.0
7.0
5.0
0.3
-3.7
5.3
3.8
1.6
4.3
2.3
1.5
1.0
0.2
6.0
10.0
2.2
5.5
4.0
1.8
1.0
3.0
6.0
6.0
3.0
4.5
3.5
2.7
1.9
4.8
-1.2
4.0
13.0
9.0
2.4
8.5
1.2
3.8
-1.5
3.0
6.0
4.5
1.8
4.0
0.2
5.1
-1.3
2.5
3.5
1.0
0.2
2.0
8.28
8.31
8.00
7.80
7.80
7.80
46.6
50.0
50.0
9625 11000 14000
3.8
3.8
3.8
49.9
53.0
52.0
1263 1300 1225
43.4
47.0
45.0
1.00
1.00
1.00
1.96
2.17
2.21
574
620
645
2,236 2,570 2,776
25,000 25,000 25,000
9.6
9.8
10.3
1.0
1.0
1.0
3.53
3.75
3.94
700
735
845
1.80
8.0
38.6
283.2
4.30
4.06
7.90
30.0
1350
1.80
8.5
36.0
237.0
n/a
4.30
7.90
31.0
1600
June 8, 2001
23
Lehman Brothers
B2**
Aa2
Aaa
A3
Ba1
Baa2
Aa1
Ba2
Aa1
B1
B1
B2
Aa1
Aa3
Baa1
A3**
Ba2
Ba1*
Baa3**
Caa1
A2**
Baa1
Aaa
B1
Caa2
Ba1
Baa3
Baa1
Ba2
Aaa
Aaa
Aaa
Aaa
A2
Ba2
B2
A3*
A3
Aa3
Ba2*
B3
B2
Aaa
A2
Aa3
Ba3
Aa1
Ba3
B1*
Baa2
Baa1
Baa2
Rating
Moodys
S&P
B**
AA+
AAA
AAA+
BB
AA
B+
BBB+*
AA+
ABBB
BB**
B
BB*
BBB-**
A
AAAA
B+
CCC+**
BBB-**
BB+
BBB+*
AA+*
AAA
AAA
A+
AA+*
BB
CCC+**
AA+*
AAA
B+
AA+
BB-*
BB
BBB*
A
BBB
Lebanon
Liechtenstein
Lithuania
Luxembourg
Macau
Malaysia
Malta
Mauritius
Mexico
Moldova
Monaco
Mongolia
Morocco
Netherlands
New Zealand
Nicaragua
Norway
Oman
Pakistan
Panama
Papua New Guinea
Paraguay
Peru
Philippines
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
Singapore
Slovakia
Slovenia
South Africa
Spain
Suriname
Sweden
Switzerland
Taiwan
Thailand
Trinidad & Tobago
Tunisia
Turkey
Turkmenistan
Ukraine
UAE
United Kingdom
USA
Uruguay
Venezuela
Vietnam**
B1**
Aaa
Ba1
Aaa
Baa1
Baa2
A3
Baa2
Baa3
B3
Aaa
Ba1
Aaa
Aa2
B2
Aaa
Baa2
Caa1**
Ba1
B1
B2
Ba3**
Ba1**
Baa1
Aa2
Baa2
B3
B2
Baa3
Aa1
Ba1*
A2
Baa3*
Aa2
Aa1
Aaa
Aa3
Baa3
Baa3
Baa3
B1**
B2
Caa1**
A2
Aaa
Aaa
Baa3
B2
B1
S&P
B+
AAA
BBBAAA
BBB
A
BB+*
B
BB
AAA
AA+
AAA
BBB
BBB+
B+
B**
BBBB+**
BBB+*
AA
BBB+*
B-*
B
AAA
BB+*
A
BBBAA+
B-**
AA+*
AAA
AA+**
BBBBBBBBB
B-**
AAA
AAA
BBBB
Lehman Brothers
24
June 8, 2001
Sovereign Calendar
LATIN AMERICA
Mon 11
Chile: Market and Public Holiday, Corpus Christi Day
Mexico: INEGI industrial activity, % y-o-y
Period Prev 3
Tues 12
May
Thurs 14
Fri 15
Wed 13
Apr
Prev 2
1.9
-3.7
-1.90
-0.5
0.8
0.46
0.22
4.00
10.21
38.37
0.38
0.50
3.75
10.76
38.37
0.58
0.59
3.75
10.39
38.90
0.42
0.40
3.75
3.80
May
-4.2
-5.6
0.2
1.0
May
19.0
12.1
11.5
11.3
11.4
12.4
10.5
Apr
May
13.8
10.4
6.5
10.5
9.8
10.3
10.2
10.3
Apr
Apr
1.4
6.6
-3.8
2.4
-1.7
1.8
-1.3
11.8
May
Apr
1.0
4.2
2.4
4.7
0.9
4.1
2.0
4.0
May
May
May
Apr
May
May
Jun
Jun
0.0
8.6
1.6
11.2
6.6
14.6
12.00
0.8
9.5
1.5
10.1
6.2
14.9
12.00
1.6
9.7
1.6
11.4
6.6
14.0
12.00
2.0
10.0
1.7
13.0
6.8
13.5
12.00
12.00
Jan-May -12.0
-15.1
-18.4
-20.0
-20.1
Thurs 14
Fri 15
4.0
6.6
Further Ahead
June 17
Bulgaria: Parliamentary elections
June 8, 2001
25
Lehman Brothers
Analytical Notes
Sovereign Comparative Statistics (Page 2)
1)
2)
3)
4)
5)
6)
Sovereign Spreads over U.S. Credit IndexThe spread differentials (1994 to present)
between Lehmans Emerging Markets and U.S. Credit Indices, the High Yield and U.S.
Credit Indices, and the International Cross-Over Bond (ICBI) and U.S. Credit Indices.
Best and Worst Performers YTD (Absolute EM Index Excess Return)The
absolute Excess Returns for the four best and four worst performers in the Emerging
Market Index for the year-to-date.
Information RatioThe ratio of Excess Returns to the volatility of those returns for
the Emerging Markets, High Yield, and U.S. Credit Indices.
Best and Worst Performers YTD (Contribution to EM Index Excess Return)The
four best and four worst performers (year-to-date) in terms of contributions to
Emerging Markets Index Excess Returns.
Total Returns for Select Asset ClassesThe total returns for the Emerging
Markets, High Yield and U.S. Credit Indices for the month-to-date, the past 3 months,
the past 6 months, and the year-to-date.
Annualized Total Return VolatilityThe volatility of Total Returns of the Emerging
Markets, High Yield and U.S. Credit Indices over 1-month, 3-months, and 6-months
and annualized.
2)
3)
4)
Regional Comparison
a) Total ReturnsThe total returns of the Lehman Brothers Emerging Markets
Index and each of the regions in the Index for the month-to-date, past 3 months, past
6 months, and year-to-date.
b) Distribution by Market WeightThe distribution by market weight of each of the
regions in the Emerging Markets Index.
Total Returns: AmericasThe month-to-date and year-to-date total returns of each
of those countries in the Americas that are part of Lehmans Emerging Markets Index.
Total Returns: Europe, Mid-East, AfricaThe month-to-date and year-to-date total
returns of each of those countries in Eastern Europe, the Middle East and Africa that
are part of Lehmans Emerging Markets Index.
Total Returns: AsiaThe month-to-date and year-to-date total returns of each of
those countries in Asia that are part of Lehmans Emerging Markets Index.
United StatesThe NASDAQ (year-to-date) and the S&P 500 (which is rescaled to
correspond to Nadaq levels) against Lehman Brothers Emerging Markets Index.
AmericasThe Morgan Stanley Capital International (MSCI) Index for the Americas
(year-to-date) against Lehman Brothers Emerging Markets Index.
E. EuropeThe Morgan Stanley Capital International (MSCI) Index for Eastern
Europe (year-to-date) against Lehman Brothers Emerging Markets Index.
AsiaThe Morgan Stanley Capital International (MSCI) Index for Asia (year-to-date)
against Lehman Brothers Emerging Markets Index.
Brazil RealThe Brazilian Real (year-to-date) against the Emerging Markets Index.
Polish ZlotyThe Polish Zloty (year-to-date) against the Emerging Markets Index.
4)
Lehman Brothers
High Yield Mutual Fund FlowsHigh Yield Mutual Fund Flows from March 4, 1992
until the present, and an 8-week moving average of those weekly flows.
Downgrade/Upgrade RatioThe ratio of downgrades to upgrades by Moodys,
Standard & Poors and an average of the two agencies.
Moodys Trailing 12-Month Dollar Based Default Rate (Spec. Grade)The
percentage of speculative grade debt outstanding over time that has been in default
over the last 12 months.
Sovereign Credit Quality IndicatorsThe average of the numeric S&P and Moodys
sovereign ratings of each of the countries in our Sovereign Weightings list in the beginning
of this publication, weighted by the outstanding marketable debt of each country.
26
June 8, 2001
THE AMERICAS
January 19, 2001
Argentina
June 8, 2001
June 1, 2001
May 18, 2001
May 11, 2001
May 4, 2001
Brazil
April 5, 2001
Argentinas Megaswap:
A Post Mortem
Effect of the Mega-Swap on Argentinas
Financing Needs
Argentina: Swap from the Swamp
The Argentine Malaise Lingers On,
but Not for All Credits
Argentina Holds the Sovereign
Market in Suspense
Colombia
January 26, 2001
Bulgaria
May 25, 2001
Cote dIvoire
November 3, 2000
Poland
October 13, 2000
Russia
May 11, 2001
April 5, 2001
February 16, 2001
January 12, 2001
Turkey
May 18, 2001
May 18, 2001
May 4, 2001
April 20, 2001
April 20, 2001
March 16, 2001
Ukraine
June 1, 2001
February 16, 2001
Chile
May 11, 2001
EASTERN EUROPE/MID-EAST/AFRICA
March 9, 2001
Emerging Europe: An Overview
January 19, 2001
Europe, Middle East, and Africa:
Financing Requirements for 2001
ASIA
May 4, 2001
Mexico
June 1, 2001
May 25, 2001
Peru
June 8, 2001
March 30, 2001
June 8, 2001
Panama
May 25, 2001
March 2, 2001
Korea
March 2, 2001
February 16, 2001
Pakistan
October 20, 2000
Philippines
March 16, 2001
January 26, 2001
Thailand
January 12, 2001
Philippine Telecoms:
Time for Another Look
The Philippines: Bottom in Sight?
27
Lehman Brothers
Sovereign Strategy
Rob Gvozden
Costas C. Hamakiotes, Ph.D.
Robert McAdie, Ph.D.
Kaushik Rudra
Marco Santamaria
Reto Bachmann
Corinne Bethke
Giuseppe Di Graziano
Nicole Sermier
212-526-6310
212-526-8082
44-207-260-3036
44-207-260-1767
212-526-7036
44-207-260-3036
212-526-8469
44-207-260-2589
212-526-7804
Publications: L. Pindyck, A. DiTizio, B. Davenport, W. Lee, D. Kramer, S. Bryant, J. Threadgill, R. Madison, A. Acevedo
This document is for information purposes only. No part of this document may be reproduced in any manner without the written permission of Lehman
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