EM Spreads Seen Tightening

EM spreads should continue to tighten this year and downturns will be buying opportunities, according to an EMTA panel of buy and sell-side analysts Thursday. “They can go tighter,” says Carl Ross, head of EM research at Bear Stearns. He predicts a 150bp spread on the EMBIG, from 170bp at the end of 2006. “We’ve decoupled totally from the US high yield index and now emerging markets is chasing the investment grade index,” says Ross. “In the near term it looks as though we might be heading towards perhaps a mini correction again, we’re moving into the heat of the first quarter earnings cycle in the US, which traditionally is a sensitive time for global markets,” says David Spegel of ING. “This will prove a buying opportunity,” he adds. “Longer term a serious crisis is more likely to be related to a growth shock globally,” says Spegel, who forecasts the EMBIG closing 2007 at 160bp. He’s more concerned about the surge in corporate issuance, much of which has been junk rated, though he says this will not hit LatAm sovereigns adversely. AllianceBernstein’s James Barrineau predicts a 155bp year-end EMBIG and tips Uruguay inflation linked bonds and Venezuela 3-year protection.