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El Salvador

March 04, 2021

Country Report: Unlimited Power

The Nuevas Ideas party won a qualified majority (56 of 84 seats) in the Legislative Assembly.

The 262 municipalities were divided between Nuevas Ideas (146), ARENA (37), FMLN (30), GANA (30), PCN (16), PDC (3) and Vamos (1).

We see significant long-term downside risks associated with the weakening of institutions and lower limits to the Executive branch.

The Bukele government will now count on municipalities as another way of managing state resources.

President Bukele is now unrestrained, as the confrontational legislative he has been denouncing since he took office is out of the way.

HOLD: Liquidity remains a little constrained, but the likely deal with the ...

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Global

March 03, 2021

EMFI Monthly Review – February

The month was mostly flat and subdued for our EMFI Core Index, falling 0.9% after the 1.5% decline seen in January.

The outperformance was concentrated in the riskier end of the spectrum, with Zambia (+9.5%), Lebanon (+3.2%), and El Salvador (+3.0%) posting the largest gains.

On the other side, Argentina (-5.4%) led the underperforming pack, followed by Sri Lanka (-3.7%), and the Dominican Republic (-3.7%).

Talk of “reflation” dominated market discussion over February, as traders and analysts debated inflation and growth picking up. Commodities also boomed led by oil and energy.

Global

Pakistan

March 03, 2021

Country Report: Never Let a Good Crisis Go to Waste

We believe the trade deficit will widen during the 2H FY2021 due to the increase in imports, reducing the current account surplus.

The resumption of the deal with the IMF and potential borrowing from WB and ADB will contribute to sustaining the current higher FX rate level in the short-term.

Although official reserves remain low compared to external debt service (38% of reserves), reserves are on an upward path thanks to the current account surplus and increased external financing.

SELL: Major changes to the curve are unlikely until the upcoming Eurobond issuance is completed, but current yield levels offer a poor risk/reward balance.

PKSTAN 6 7/8 12/05/27 Price

Angola

March 02, 2021

Country Report: Red Numbers for the Oil Sector

Oil production has fallen by almost 500 thousand barrels per day (tbd) in the past 4 years.

Angola’s upstream regulator, ANPG, expects that production will recover to around 1,300 tbd, from 1,154 tbd in January 2021.

It also estimates that natural decline at aging oil field will leave output below 1,200 tbd by 2023, under 1,000 tbd by 2025 and barely above 500 tbd by the end of the decade.

In 2020, the country struggled to comply with its OPEC+ output quota while servicing its debt to China, resulting in notable shipment cuts to the rest of its commercial partners.

SELL: Despite the short-term impact of higher oil prices, fundamentals have really deteriorated...

ANGOL 8 1/4 05/09/28 Price

ANGOL 9 3/8 05/08/48 Price

Angola

March 01, 2021

Strategy Viewpoint: Are we Through Yet?

After the triple shock of 2020, the government has tried to address the crisis without breaching the commitment to fiscal consolidation assumed with the IMF

Although total debt is excessively high (122% debt-to-GDP), the debt relief achieved with China reduced the most urgent liquidity problems

An increase in the IMF's allocated SDRs also gives hope to the sovereign

We believe that Angola's curve continues to move away from its deteriorating fundamentals, which is why we maintain our SELL credit rating

ANGOL 8 1/4 05/09/28 Price

ANGOL 9 3/8 05/08/48 Price

Bolivia

March 01, 2021

Country Report: Running Out of Gas

Natural gas production stood at 16,254 million cubic meters (MCM), a -3.8% variation against 2019.

Internal consumption fell to 3,005 MCM, a -14% contraction against 2019.

Exports to Brazil in 2020 reached USD 1,021 mn, a contraction of 30% vs. 2019, and USD 969 mn to Argentina, a decrease of 23%.

HOLD: Yields remain unattractive, but a lack of major short-term commitments keeps investors safe for now. Still, the downtrend in gas exports and output risk further deterioration of liquidity and solvency.

BOLIVI 4 1/2 03/20/28 Price

El Salvador

March 01, 2021

Flash Note: All powers for Bukele

The Nuevas Ideas party of President Nayib Bukele won in a landslide the legislative and municipal election on February 28.

Up to now, the Nuevas Ideas party would have 56 deputies, which would give it a qualified majority (two-thirds of 84 seats)

Having a qualified majority, the ruling party could approve a new debt issue and appoint the magistrates of the Supreme Court of Justice

Bukele would not be able to amend the constitution to run for re-election in 2024, as this would have to be ratified by the next Assembly between 2024 and 2027.

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Lebanon

February 25, 2021

Country Report: Is the Solution to the Crisis in Lebanese Hands?

The PM-designate Hariri went on a successful international tour to gain support for the formation of the government.

Hariri visited Turkey, Egypt, France, Qatar and the United Arab Emirates.

Hariri is taking advantage of its main strength which is international recognition.

However, the cabinet formation will remain stagnant pending negotiations between Iran and the United States.

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

Global

February 24, 2021

Flash Note: Commodity Tailwinds

We focus on the net exporters among EMFI countries, which would benefit from the current global reflation theme

Benefits from a bullish commodity cycle will improve liquidity buffers and will contribute to an improvement in fiscal accounts.

Benefited EM countries can use tailwinds to undertake structural changes that can improve long term solvency.

Global

Turkey

February 23, 2021

Flash Note: Baby Steps

Last week, the Turkish lira was trading at 6.9 per dollar, its best since August.

It has appreciated by 6.8% YTD, ranking as one of the best performing EM currencies.

We expect that authorities will keep the interest rate unchanged until April, when inflation is expected to peak and authorities would proceed with an interest rate hike.

Another encouraging fact is that credit growth has been below inflation in the last two months, and the central bank has been slowly rebuilding FX reserves.

TURKEY 6 1/8 10/24/28 Price

TURKEY 5 3/4 05/11/47 Price

Sri Lanka

February 23, 2021

Country Report: Putting Band-Aids on a Bullet Hole

Sri Lanka lost USD 2.7 bn in travel earnings during 2020 thanks to the border closures and worldwide lockdowns.

The FX inflow shortfall was compensated by strong remittances growth (+USD 239 mn), and most importantly by the drop in imports (+USD 3.9 bn).

The government is delaying an almost inevitable restructuring by relying on temporary fixes: currency swaps and imports cut.

The stubborn resistance to engage in an IMF program raises concerns about the country’s capacity to pay as international reserves are down to just USD 4.8 bn in January.

We are increasingly sceptical that the government will be able to pay for SRILAN 21, although we do not discard it. B...

SRILAN 5 3/4 04/18/23 Price

SRILAN 6 3/4 04/18/28 Price

Ghana

February 22, 2021

Country Report: The Goose that Lays the (Black) Golden Eggs

Ghana’s average oil production was 201 TBD in 2020, a 0.1% YoY increase.

Oil and gas production accounted for 21.1% of industrial output and 8% of total GDP in 2020.

Oil is the second single export item of the country, only surpassed by gold.

GHANA 7 5/8 05/16/29 Price

GHANA 8.627 06/16/49 Price

Global

February 22, 2021

Flash Note: Lookout for Inflation

We analyzed EMFI countries looking for similarities and differences in terms of monetary policy, inflation and currency performance coming out of the pandemic.

Inflation remains subdued in most of the countries covered, as the COVID shock to aggregate demand has kept inflationary pressures under control.

Inflation expectations are rising, and the reflation theme is having an impact on all major commodities. Will this force EM countries to revisit their monetary policy?

Global

Argentina

February 19, 2021

Flash Note: The Lower It Goes, The Better it Gets

The mix of extremely low bond cash prices and tangible catalysts provide a good risk/reward setting with attractive optionality.

As bonds continue to slide, our thesis is reinforced, turning us even more bullish.

We stress test our thesis, by assuming that the next government – to be elected in late 2023 – restructures its commercial debt.

We analyse bond’s break-even recovery values. This is the recovery value that will give investors flat returns after facing a hypothetical restructuring.

ARGENT 0 1/8 07/09/30 Price

Global

February 19, 2021

Flash Note: Another Push for Private Relief

In November 2020, the G20 countries and the Paris Club agreed on a common framework to deal with LICs with debt problems

The common framework seeks to provide more comprehensive support that goes beyond the pandemic shock

The key differences with the DSSI are that it has no time limitations, and requires both private sector involvement and IMF engagement

GHANA 7 5/8 05/16/29 Price

GHANA 8.627 06/16/49 Price

Suriname

February 18, 2021

Flash Note: Time is Running Out

Although President Chan Santokhi hoped that a quick agreement would be reached with the IMF (possibly in late January or early February), the negotiations are still stalled. On February 9, during the last meeting between the technical commission of the IMF and representatives of the government of Suriname, the IMF staff positively highlighted the efforts made by the government of Suriname so far. However, there are two issues on which there is still no agreement: the government budget and the exchange rate regime.

Regarding the first issue, the budget presented by the government is unrealistic. As we explained in our Country Report: Suriname in 2021, even after considering the poten...

SURINM 9 1/4 10/26/26 Price

Global

February 18, 2021

Flash Note: 2021 is (Mostly) Secure

After 2020 defaults, we assess whether 2021’s bond maturities could bring new credit events.

We find that TURKEY 21, DOMREP 21, and the first of COSTAR 21 are nothing to worry about. Meanwhile, we are confident that UKRAIN 21’s maturity will be met.

The government has the willingness to pay SRILAN 21, but resources are scarce.

November’s maturity of COSTAR 21 could be endangered if the IMF deal is not approved by Congress.

Global

Nigeria

February 17, 2021

Country Report: Fiscal Space Thin as a Rail

General government revenue in 2020 is expected to have been just 5.9% of GDP, a contraction of 1.1 p.p. vs 2019.

Nigeria's fiscal revenue is closely related to its oil-related income, accounting on average over the last decade for approximately 60% of total revenues.

Over the past 4 years debt service has accounted, on average, for 26% of total expenditure, and has represented 57.9% of total revenues of the federal government balance.

Nigeria has one of the lowest ratios of revenue to GDP of the continent, at 5.9% of GDP in 2020 against 27% of GDP in the second-largest economy of the continent, South Africa.

HOLD: In the immediate future, we see oil price...

NGERIA 9.248 01/21/49 Price

NGERIA 8.747 01/21/31 Price

Sri Lanka

February 17, 2021

Flash Note: Playing with Fire

Sri Lanka's performance seems to reflect expectations that a restructuring is inevitable

This could develop in a more market-friendly way if carried out under a comprehensive reform framework agreed with the IMF

Public finances are under pressure due to a saturated domestic market, a growing fiscal deficit and no participation in the G20’s DSSI initiative

While some deals may solve liquidity problems, they will not correct the country's vast fiscal imbalances and the solvency problems that staggering debt service entails.

SRILAN 6 3/4 04/18/28 Price

El Salvador

February 16, 2021

Flash Note: A Normalization Worth Chasing

On average, El Salvador bonds have gone up 15 pts after they rebounded from their October lows, as a more than necessary deal with the IMF has become more than likely.

Market response to Costa Rica can serve as a proxy for what to expect in el Salvador.

Considering EL SALVADOR 32 and COSTA RICA 31 spread since 2019, we see room for further tightening and a normalization of the flat Salvadoran curve, favoring the short end.

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Barbados

February 15, 2021

Country Report: Caught in the COVID-19 Trap

In 2020, the Barbadian economy recorded the deepest single-year contraction in its history: -17.6%

There are strict internal mobility restrictions due to the increase in new cases and lower tourism due to the third wave of coronavirus in the UK

Economic activity will decline in the first quarter of the year compared to 4Q20

The recovery figures for tourism worldwide have worsened according to UNWTO experts

BARBAD 6 1/2 10/01/29 Price

Ukraine

February 15, 2021

Flash Note: Long End Bullish Thesis Remains Intact

Even though Ukraine had a strong performance in the last 6 months, our bullish thesis on the long end of the Ukrainian curve remains intact.

The curve lost curvature, which led the belly to outperform by ~180 bps, but the curve is still steep. We now favor UKRAIN 32 over UKRAIN 28.

Our biggest catalyst for a potential tightening for Ukraine is the disbursement of the second tranche (USD 2.2 bn) of the IMF’s SBA program-related funds

We think the long end of the curve is poised to outperform, with the 10y-1y slope hitting the long-term average of 250 bps.

UKRAIN 9 3/4 11/01/28 Price

Egypt

February 12, 2021

Flash Note: Hedge your Bets

We continue to find high carry in Egyptian treasury bills attractive, given sustained high real rates

Our forecasted deterioration in the current account this fiscal year forces us to evaluate the cheap hedge given by USD/EGP forwards.

We like picking up some protection and locking in 5.05% USD annualized rates in the 6 month treasury bill.

EGYPT 6.588 02/21/28 Price

EGYPT 7.903 02/21/48 Price

Ecuador

February 12, 2021

Flash Note: Don’t Count Your Chickens Before They Hatch

Guillermo Lasso made a comeback and is now winning the race for second place, receiving 33,656 votes more than Yaku Pérez with 99.99% of votes processed.

There are only 4 additional electoral records to process, alongside another 124 contested records.

Yaku Pérez is demanding a recount in sixteen provinces, and held a televised meeting with Lasso and members of the electoral commission to discuss the terms of this request.

ECUA 0 1/2 07/31/30 Price

Argentina

February 11, 2021

Country Report: The Monetary Hangover

Central Bank (BCRA) debt issuances are becoming an important source of monetary expansion.

In 2021, the BCRA will have to issue 41% of January’s monetary base (USD 11,981 mn) to pay interest on its monetary liabilities.

In January, net international reserves hit a new low, reaching just USD 3,667 mn, 69% lower than when Fernández started his mandate.

EMFI Securities expects inflation to climb to 48.9% this year (from 36% in 2020), at the expense of regulated prices, a higher spread between the official and parallel FX rate, repressed salaries and social security adjustments.

BUY: Despite poor signals from the IMF negotiations and bad solvency indicator...

ARGENT 1 07/09/29$ Price

ARGENT 0 1/8 07/09/30 Price

Ecuador

February 10, 2021

Country Report: Holding Our Breath

Andrés Arauz won the first round of the presidential elections by a large margin.

His ballotage opponent will be defined in the next few days, given that there are 4,025 electoral records to be reviewed. It is likely to be Yaku Pérez.

The two surprises of the election night: the 12 p.p. of advantage of Arauz over the runner-up and the impressive performance of dark horse candidate Xavier Hervas.

Correísmo will be the dominant force in the National Assembly, followed by the indigenous movement.

Pérez might be the lesser evil if he makes it to the ballotage, as Arauz would be even worse news for investors.

BUY: Electoral uncertainty ...

ECUA 0 1/2 07/31/30 Price

Argentina

February 10, 2021

Flash Note: Argentina Local Currency Update

We revised our Argentina Local Currency December strategy outlook, where we analyzed inflation linked and dollar linked bonds.

ARS Inflation Linkers continue to be the only attractive securities to invest within the local currency universe.

Inflation heated up in December, with a 4% m-o-m print (core CPI 4.9%) and we expect a 4.5% m-o-m print for January

Given Central Bank signalling, we like the belly and the long-end, and especially like TC25 and DICP, which offer 8.5% and 7.29% real yields.

ARGENT 0 1/8 07/09/30 Price

Nigeria

February 10, 2021

Strategy Viewpoint: A Delicate Balance

We assess the attractiveness of NGERIA bonds, which are among the lowest yielding on the “B-” credit rating group.

A low debt-to-GDP ratio is the main positive factor outweighing low economic growth, extremely-low fiscal collections, and high annual debt service payments.

NGERIA bonds have the highest durations among their comparables.

Going forward, we believe that any upside will be tied to oil prices. Upsides will be limited unless the recent bullishness in the oil market is sustained, so maintaining our HOLD rating seems appropriate.

NGERIA 9.248 01/21/49 Price

NGERIA 8.747 01/21/31 Price

Zambia

February 09, 2021

Country Report: Worth its Weight in Copper

Zambian authorities agreed to take on a 73% stake in Mopani Copper Mines from the Swiss company Glencore.

The movement was agreed with a loan from Glencore to the Zambia Consolidated Copper Mines Limited for USD 1,500 mn.

At the end of the 3Q-2020 external debt stood at USD 12,360 mn (65% GDP).

The mining industry accounts for 12% of Zambian GDP and more than 80% of its total exports.

ZAMBIN 8.97 07/30/27 Price

Sri Lanka

February 09, 2021

Strategy Viewpoint: Time of Reckoning

We agree with the general market expectation that SRILAN 21 will be paid, but we cannot rule out that after the halt of Indian financing this will change.

Service on Eurobonds and development bonds alone exceeds USD 2.5 bn (43.9% of international reserves) from now till July.

The government expects to cover financing needs (27.2% of GDP) with bilateral loans and local debt, although the latter seems to be near exhausted.

We think that the suspension of the swap with India greatly increases the pressure to seek an agreement with the IMF.

SRILAN 6 3/4 04/18/28 Price

SRILAN 6 1/4 07/27/21 Price

Global

February 09, 2021

Flash Note: Another Tool for IMF

Another way in which the IMF can get purchasing power into the hands of struggling countries is via Special Drawing Rights (SDRs) issuance.

SDRs constitute part of FX reserves of member countries, and can be used in operations or transactions involving the IMF, such as interest or principal payments.

SDR issuance has been an ongoing debate throughout 2020 and continues to be an important topic for Sovereign Debt.

Using our own liquidity indicators we try to determine which countries will be the main beneficiaries in the case the IMF does incur in SDR issuance.

Global