EM debt rush

Emerging market borrowers are rushing to tap global debt markets at the fastest pace in at least a decade, taking advantage of a brief risk-on window before a possible return of volatility to the market, Bloomberg reports. More than USD 27 bn worth of issuances were priced last week alone, including sales from Saudi Arabia, Brazilian oil giant Petrobras, and Turkey’s sovereign wealth fund.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

The surge has pushed YTD EM issuances to nearly USD 511 bn — the busiest similar time period since 2021. JPMorgan now forecasts a record year of nearly USD 240 bn in sovereign issuances, with September already logging USD 8.5 bn — more than half the average for the month. Even Brazil, which typically relies on local markets, has tapped global markets three times this year.

Investor appetite has been outsized: Saudi Arabia’s USD 5.5 bn sukuk drew USD 17.5 bn in orders, while Turkey’s USD 1 bn sale was 10x oversubscribed. Demand has narrowed EM risk premiums, with the extra yield over US Treasuries falling to 298 bps on average — the tightest since 2019, according to JPMorgan’s gauge. The strong appetite shows investors are “preemptively anticipating some volatility,” said Aayush Sonthalia of PGIM Fixed Income.

This backdrop has lured steady inflows into EM-dedicated debt funds for 20 consecutive weeks, totaling USD 1.9 bn in the week ending 3 September, EPFR data shows. Local currency debt is up 13% this year, with USD-denominated bonds up by more than 8% — both outpacing developed-market debt returns of 6.5%.

Still, strategists warn the window may be short-lived. Persistent inflation, heavy sovereign borrowing, and political instability in core markets from the UK to Japan are unsettling global bonds, raising the risk that higher US yields will push up EM borrowing costs.

More agreements are in the pipeline: Saudi Aramco is preparing a USD sukuk this month, and Mexico may issue up to USD 10 bn to fund a Pemex bond buyback — with Indonesia, Kuwait, Oman, and Nigeria all expected to follow by year-end.

MARKETS THIS MORNING-

Equity markets in Asia are firmly in the green this morning, maintaining gains on the back of Japan’s prime minister stepping down over the weekend, and tracking a positive day for US tech stocks yesterday. Japan’s Nikkei hit an all-time high yesterday and is up in early trading, while the Shanghai index is trading flat.

Over on Wall Street, markets are on track to follow suit and open in the green, after the tech-heavy Nasdaq, the Dow Jones, and the S&P 500 all closed up yesterday.

THE CLOSING BELL-

The EGX30 rose 0.4% at yesterday’s close on turnover of EGP 5.2 bn (17.5% above the 90-day average). International investors were the sole net sellers. The index is up 16.3% YTD.

In the green: Raya Holding (+4.0%), Abu Qir Fertilizers (+2.3%), and Emaar Misr (+2.2%).

In the red: Qalaa Holdings (-6.5%), E-finance (-3.8%), and Misr Cement (-3.8%).

CORPORATE ACTIONS-

Ferchem secures approval to begin trading: Ferchem Masr for Fertilizers and Chemicals got the regulatory green light to begin trading on the EGX, after it listed 400 mn of its shares on the bourse at EGP 2 per share, according to a disclosure (pdf) to the EGX. The company received the approval after absorbing Aswan Fertilizers and Chemical Industries and Abu Zaabal Fertilizers and Chemicals Company, bringing its issued capital to EGP 800 mn. The date of its trading debut is yet to be announced.