FXstreet.com (Barcelona) - With EM currencies poised to rally
further this year, Win Thin of Brown Brothers Harriman thought it
would be interesting to look at recent trends in Uridashi bond
issuance. He netted out JPY denominated issues in order to focus on
the foreign currency aspects of the Uridashi market.
He begins by explaining, "Foreign currency-denominated issuance
peaked near $25 bln in 2010 from less than $1 bln back in 2006,
according to data compiled by Bloomberg. This amount eased slightly
to $22 bln in 2011 and $19.5 bln in 2012.This year has started out
well, with issuance in the first half of January nearing $750 mln.
The lion's share of these issues is denominated in EM FX, though
AUD and NZD typically take up a minority share."
Looking back to 2006, he notes that TRY took up the biggest share
of non-JPY issuance, about 42% in total, followed by ZAR with 21%,
MXN with 19%, USD with 11%, NZD with 5% and RON with 1%. Over time,
Uridashi issuance has been done in more and more currencies. In
2007, AUD and RUB were added to the mix. In 2008 he adds that the
were no MXN or RON issuance at all, but BRL, GBP, HUF and EUR were
added before INR in 2009. In 2010, a very small amount of CNY was
issued. In 2011, PLN, INR and KRW took up very small shares of
Thin offers a summary of recent trends, "AUD share of total foreign
currency-denominated Uridashi issuance peaked at 45% in 2011 before
easing a bit to 35% in 2012. TRY had the second-biggest share in
2012 at 19%, up from 10% in 2011 and 5% in 2010. BRL had the
third-biggest share in 2012 at 16%, down from 19% in 2011 and a
cycle peak near 22% in 2010. ZAR had the fourth-biggest share in
2012 at 10%, down from 12% in 2011 and 16% in 2010. MXN share rose
to 3% in 2012 after remaining at or below 0.5% from 2008-2011.
Strong showings were seen at 12% in 2007 and 17% in 2006. We are
surprised that MXN does not have a larger share now, but at least
the trajectory is the right one. Looking elsewhere at DM
currencies, NZD is the only other one besides AUD to have a
significant share of total issuance, around 6% in 2012."
He continues to explain that so far in 2013, MXN accounts for 16%
of total foreign currency-denominated Uridashi issuance, and
compares to NZD at 20% and AUD at 15%. ZAR is less than 1%, but RUB
is around 21%. BRL still retains a fairly big share at 14% this
year, but we do think that the data shows that Japan investors have
been trying to diversify away from BRL. TRY appears to have been a
major beneficiary, as does MXN and, to a lesser extent, IDR and
He writes, "Given near-zero rates in much of the DM and relatively
high interest rates still in pockets of EM, we think that the flows
into EM will continue this year. Not just from Japan, either. The
Uridashi market represents a small slice of the market, but we do
believe the trends in that market will largely reflect the larger
market as a whole."
He continues to finish by stating, "We stand by our belief that
fundamentals will matter more in 2013. Clearly, high yielders like
HUF and ZAR are no longer as attractive as they once were due to
deteriorating fundamentals. On the other hand, improving
fundamentals and lower volatility in TRY are being recognized. We
also think investors should consider adding CLP and COP into the
mix. Yields there are relatively attractive, and are backed up by
very good economic fundamentals. KRW and MYR also have good
fundamentals, but the yield story is not quite as attractive."