As the week draws to a close, a sharp rebound in the rupiah, ringgit and ruble has helped lift emerging-markets currencies to a multi-year high. With a marginal recovery in several key commodities and receding fears over rapid tightening by the Federal Reserve, the rally comes as a relief for central banks in fragile developing states, though many analysts predict these good times cannot last. A critical test for the sector will come Tuesday and Wednesday as Chinese trade and inflation data provide fresh insight into the health of demand in the world’s most important consumer of raw materials.
Ferrari Close to Market Debut
As Fiat Chrysler Automobiles prepares to float 10 percent of legendary Italian performance car maker Ferrari in an initial public offering on the New York Stock Exchange, media reports indicate that the Italian-American car maker, headquartered in London, is seeking valuation of $10 billion to 12 billion for the spinoff. A price that high would represent a multiple of over 12 times the company’s projected forward earnings, despite headwinds facing the luxury-car market as demand in developing economies cools.
Standard Chartered Prepares to Cut Heads at the Top
An internal memo issued this week by Standard Chartered indicates that as much as 25 percent of the top 1,000 executives at the bank will be eliminated in coming months as part of a cost-cutting program instituted by recently installed CEO Bill Winters. The head-count reduction will be executed using internal performance rankings.
Glencore Slashes Zinc Output
In reaction to collapsed base-metal prices, troubled Baar, Switzerland-based Glencore announced Friday a reduction in zinc production by a half-million metric tons — approximately a third of the company’s projected annual production. The move will include shuttering mining complexes in Australia and Peru completely as well as reducing activity at sites elsewhere in Latin America and Kazakhstan.
U.K. Trade Gap Wider than Expected
On Friday, the U.K. Office for National Statistics announced a trade deficit for August that exceeded consensus forecasts. Exports from Britain grew by 3.5 percent for the month while inbound shipments contracted 0.7 percent, leaving the aggregate shortfall at $17 billion for the month.
Portfolio Perspective: Seeking Value in the “Best of the Stressed” Corporate Bonds
As credit markets have sold off since the middle of 2014, there has been a corresponding increase in the number of stressed and distressed issuers, which we define as issuers that trade with an average OAS [option-adjusted spread] wider than 800 basis points. While a spike in the number that peaked in late 2014 was heavily concentrated in energy names, a new spike since June 2015 has been more evenly distributed.
We remain cautious about the near-term path of market spreads, but we know that stress tends to be an unstable condition. Historically, most stressed names tend either to improve out of the stressed range or to move definitively toward distress within the following year, with two improving for each that gets worse. While such names also tend to move in groups (which will typically cause them to underperform as a group during sharp market sell-offs), we think it remains one of the most promising groups to look at to find names with the potential to outperform.
— Ryan Preclaw is a senior research analyst at Barclays in New York.
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