08/14/1998 18:46:14 Emerging mkt players anticipate G7 move on Russia
By Apu Sikri
NEW YORK, Aug 14 (Reuters) - Emerging market debt prices
were flat to slightly lower late Friday with Russia continuing
to dominate market attention.
The question that loomed large over the market was whether
the Group of Seven nations will work out some sort of
multilateral package for Russia to finance the outstanding stock
Investors warned that current price levels on Russia's
dollar bonds are reflecting an anticipation of some such
If there is no such package, "the market is going to be very
disappointed from these levels and will trade back to recent
lows," said Michael Casey, portfolio manager at Federated
"The real big question is as to what extent another package
is going to finance every investor that wants to get out," said
Emilio Lamar at Columbus Advisors. "Or (will it be used to) turn
around the country," he said.
The dilemma now facing Russia and its G7 partners is whether
to dish out funds to pay out GKO holders or to forcibly
restructure that debt - an action that could further alienate
Furthermore, with an increasing erosion of confidence in the
rouble, the central bank is having to spend additional amounts
to defend the currency, analysts said. Already, Russian central
bank foreign reserves are down to about $17 billion as of last
Friday, analysts said. This week alone, the central bank would
have spent anywhere between $500 million to $1 billion defending
the currency, these analysts said.
With that kind of money being spent to support the rouble,
Russia likely won't have the money to pay out on GKOs, analysts
said. Moreover, there are about $1 billion in coupon payments on
the dollar bonds due around December.
Traders said few people want to hold short positions on
Russian bonds or other emerging market debt into the weekend,
given that there is the possibility on some sort of statement
from the G7 countries. But next week, if no resolution is
reached among the major powers on how to deal with Russia's
financial crisis, emerging market debt could slide back to the
lows of earlier this week, traders said. This would be about ten
points lower on Russia bonds and anywhere from three to seven
points lower on the securities.
The emerging debt market "is in terrible shape," said Hari
Hariharan, portfolio manager at Santander New World Investments.
People are "clutching to any piece of news" and prices are being
driven "by the muscle of the marginal player," he said.
In the market, Russia's benchmark PRINs were trading late
Friday at 31-3/8 and Brazil's "C" bonds <BRAZILC=RR> were
dealing at 69-3/4.
(( --N.A. Treasury Desk; 212 859-1562;