June 30, 2017 / 6:28 PM / 22 days ago

Upbeat outlook, investor inflows lift emerging market first-half issuance

4 Min Read

LONDON (Reuters) - An improving economic backdrop and yield-hungry investors helped lift hard-currency debt sales by emerging market governments and firms in the first six months of 2017, with fundraising on equity markets also getting a boost.

Bond sales from corporate and sovereign issuers across developing nations have risen to just over $355 billion in the first six months of 2017 -- the strongest half-year performance in at least 10 years, according to Thomson Reuters data.

All global regions saw an increase in both the volume and amount of deals, the data showed, with issuers in the Asia-Pacific region making up nearly 50 percent of all debt sales.

"It's an alliance of convenience," said Michael Power, a strategist at Investec Asset Management. "Emerging markets want to borrow and on the other side are people who want the yield."

Fund managers, faced with low interest rates across much of the developed world, have been plowing money into emerging markets for months, at levels similar to those seen during the so-called commodity super cycle.

Yet the prospect of policymakers in the developed world hiking interest rates or withdrawing stimulus has also prompted issuance, said Patrick Esteruelas at Emso Asset Management.

"It makes sense to lock in long-term funding at favorable rates," said Esteruelas, adding the threat from U.S. President Donald Trump's reflationary policies had contributed to the mix.

"If all those policies had actually materialized, emerging markets would have been on a different planet, so there was a lot of front loading before the new Trump term got going."

Issuance from emerging market governments, which account for around a third of debt sales, is expected to continue at a fast pace, said JPMorgan in its emerging market outlook sent to clients earlier in the month.

A number of governments joined the latest issuance wave.

Egypt sold $3 billion in May -- twice as much as expected -- following a five-year hiatus after the Arab Spring uprising. Argentina surprised markets with a 100-year issue in June, of which it sold $2.75 billion just over a year after emerging from its latest default.

JPMorgan, which runs the most widely used emerging debt indexes, expects total sovereign debt issuance from developing countries to amount to $143 billion in 2017, compared to just under $130 billion last year.

It estimated corporate debt issuance across emerging markets would amount to $380 billion in 2017, with just over $208 billion already issued by early June.

Equity markets painted a similar picture. The first six months of the year saw 405 companies listing on stock exchanges across emerging markets - the highest number of initial public offerings (IPOs) in at least 10 years, according to Thomson Reuters data.

In volume terms, this raised nearly $30 billion, almost double the amount raised in the first half of last year but short of the nearly $40 billion brought in the second half of 2016.

The Asia-Pacific region accounted for nearly $25 billion of IPO volume across 375 stock market debuts - the highest number of listings in at least 10 years.

The total amount of funds raised on equity markets, including rights issues, stood at $87.5 billion since the start of the year, the data showed.

Emerging equities have had a stellar start to the year, with the MSCI emerging benchmark .MSCIEF up nearly 18 percent since the start of the year. reut.rs/2ne9sjH

Reporting by Karin Strohecker and Sujata Rao Editing by Jeremy Gaunt

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