Sell Dubai CDS on ‘No Sovereign Risk,’ JPMorgan Says (Update1)
March 26 (Bloomberg) — Investors should sell credit- default swaps linked to Dubai’s government because the restructuring of state-owned Dubai World’s debt poses “no sovereign risk,” JPMorgan Chase & Co. said.
“We have argued since the announcement of Dubai World restructuring that there is no sovereign risk and we continue to recommend selling Dubai sovereign CDS protection,” JPMorgan’s London-based Brahim Razgallah wrote in a research report dated today.
Dubai default swaps declined yesterday, signaling an improvement in perceptions of the emirate’s ability to make debt payments, after the government said it will provide as much as $9.5 billion for Dubai World, which is seeking to reschedule $23.5 billion of debt. The contracts pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.
The additional restructuring funds double to $20 billion the amount the government allocated to Dubai World, which will ask creditors to wait up to eight years to get all their money back. The company said in November it would seek to delay repaying debt until May, sparking a plunge in developing-nation stocks and doubling the cost to protect against a default by Dubai.
Emerging Stocks Rise First Time in Three Days on Greece, China
March 26 (Bloomberg) — Emerging-market stocks rose for the first time in three days after Greece received a promise of aid from European leaders and China’s central bank indicated it will be cautious in raising interest rates.
The MSCI Emerging Markets Index climbed 0.4 percent to 993.37 at 9:53 a.m. in New York. Currencies strengthened against the dollar, led by a 0.6 percent gain in Turkey’s lira.
Leaders of the 16-nation euro region endorsed a Franco- German proposal for a mix of International Monetary Fund and bilateral loans at market interest rates, while voicing confidence that Greece won’t need outside help to cut Europe’s biggest budget deficit. The Shanghai Composite Index climbed 1.3 percent after China’s central bank Deputy Governor Zhu Min said yesterday that policy makers are “very careful on the interest rate, because it is a heavy-duty weapon.”
“Emerging markets still offer good opportunities,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC. “While we expect markets to be in an uptrend, we will continue to see a lot of volatility.”
Today’s rally pared the MSCI index’s first weekly decline in seven weeks. The 22-country benchmark gauge has retreated 0.5 percent since March 19 on concern tighter monetary policy from central banks led by India and China, along with growing budget deficits in the euro area, may curb the global economic rebound. For the quarter, the index is up 0.3 percent.
Fund Flows
The extra yield investors demand to own emerging-market debt over U.S. Treasuries gained for the first time in four days, rising one basis point to 2.45 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index.
Emerging-market bond funds received $1.05 billion in the week through March 24, the second-biggest inflow on record, according to research firm EPFR Global. Developing-nation equity funds attracted $1.4 billion during the period, EPFR said.
China’s Shanghai index rose the most in seven trading days. Huaxia Bank Co. surged 5.9 percent in Shanghai in its biggest advance since Dec. 4, and Industrial & Commercial Bank of China Ltd. added 0.7 percent in Hong Kong on increased earnings. Poly Real Estate Group Co. climbed 2 percent, gaining for the first time in five days.
“We are very careful managing liquidity” with other instruments, and it looks like that “works very well,” Deputy Governor Zhu said in Hong Kong yesterday, citing an expected slowdown in credit growth in March.
South Africa
Taiwan’s Taiex, Indonesia’s Jakarta Composite index and India’s Bombay Stock Exchange Sensitive Index all climbed 0.5 percent. Brazil’s Bovespa index rose 0.3 percent, advancing for the first time in three days.
Russia’s Micex Index gained 0.4 percent after oil prices increased and the central bank cut its main interest rates for the 12th time in less than a year to resuscitate lending. OAO Lukoil, the country’s largest non-state oil company, rose 0.7 percent.
South African bonds rallied, pushing yields to near the lowest in almost a year, as investors bought debt on speculation the central bank may further cut the main interest rate after an unexpected half-point reduction to 6.5 percent yesterday. The yield on the benchmark 13.5 percent security due September 2015 dropped 16 basis points to 7.87 percent.
Dubai
Credit default swaps linked to Dubai’s government traded at 403 basis points as of 7:50 a.m. in New York, from 402.9 yesterday, according to CMA DataVision prices. The contracts, which pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent, tumbled yesterday after the government said it will give as much as $9.5 billion to state-owned Dubai World, which is seeking to reschedule $23.5 billion of debt.
Investors should “unwind” exposure to Dubai government debt because the restructuring plan proposed for Dubai World won’t do enough to reduce the emirate’s debt burden, Morgan Stanley said.
“At current levels the risk/reward profile of Dubai sovereign spreads looks unattractive, and we advise investors to close their exposure to the credit,” Morgan Stanley’s London- based strategist Paolo Batori wrote in a research report dated today. A basis point equals $1,000 a year on a contract protecting $10 million debt.
Sports in Brief: College player fatally stabbed
A Florida International football player was stabbed to death last night on campus in Miami.
University president Mark Rosenberg said in a news release that Kendall Berry had been stabbed and that the school was “shocked and saddened.”
Berry, 22, was a reserve running back for the Golden Panthers from Haines City, Fla.
A Colorado State University club hockey player faces misdemeanor charges after he allegedly checked a referee – slamming him into the boards – during a national tournament in Simsbury, Conn.
The incident happened last Friday, after A.J. Hau, 24, became upset over his team’s 5-4 overtime loss to William Paterson in the American Collegiate Hockey Association Division II national tournament, police said.
Hau told the Rocky Mountain Collegian newspaper that he “barely bumped” the referee, who had ejected him earlier in the game.
The referee’s name was not released.
Georgia Tech basketball coach Paul Hewitt confirmed yesterday that he had turned down an offer from St. John’s. “My family and I have developed deep ties to Georgia Tech and the city of Atlanta,” Hewitt said in a statement.
When Norm Roberts was fired last week after six seasons at St. John’s, athletic director Chris Monasch said he wanted to hire “someone who has a record of success of getting into the NCAA tournament.” St. John’s has not been to the NCAAs since 2002.
Auburn will pay basketball coach Tony Barbee, formerly of UTEP, $1.5 million annually over the next six years. Barbee will receive a base salary of $225,000 with the rest coming from endorsements and television, radio and Internet rights, and personal appearances.
Barbee will also receive two dealer cars or car allowances equaling 5 percent of his base salary. Auburn was paying Jeff Lebo $785,000 a year before his firing after six seasons.
Thomas Young scored 15 points to lead Indiana (Pa.) past St. Cloud State, 76-70, in the semifinals of the NCAA Division II tournament in Springfield, Mass. The Crimson Hawks (33-2) will play Cal Poly-Pomona in tomorrow’s 1 p.m. final.
TELEVISION: Chester R. Simmons, 81, who served as president of ESPN during the company’s launch in 1979, died yesterday in Atlanta, his family said. The cause of death was not disclosed.
Simmons, who began in broadcasting in 1957, was involved in developing Wide World of Sports before becoming president of NBC Sports and later ESPN. Among his most notable achievements were the birth and direction ofSportsCenter on Day One of ESPN; television’s first comprehensive coverage of the early rounds of the men’s NCAA basketball tournament; and the NFL draft telecast (both in 1980). He left ESPN in 1982 and joined the USFL, serving as the league’s commissioner until January 1985.
TENNIS: Former No. 1 Ana Ivanovic beat Pauline Parmentier of France, 6-4, 6-3, in her opening match of the Sony Ericsson Open in Key Biscayne, Fla. Since her French Open win two years ago at age 20, Ivanovic has been slowed by injuries, most recently a sore shoulder. The Serb is ranked 58th this week and out of the top 50 for the first time in five years.
http://www.philly.com/inquirer/sports/20100326_Sports_in_Brief__College_player_fatally_stabbed.html
Forex: Dollar, edges down after GDP downward revision
FXstreet.com (Barcelona) – The US Dollar has dipped against its main rivals, especially against the Yen after the release of final 4th quarter’s GDP data which was revised lower then expected, to 5.6% annual rate, from the 5.9% rate previously estimated.
USD/JPY had picked up from 92.30 reaching 92.80 session high before GDP data, and the pair has eased to 90.65 after GDP revision was released. GBP/USD has picked up about 20 pips, from 1.4845 to 1.4865 while EUR/USD has remained steady around 1.3370.
US Gross Domestic Product has been revised down to a 5.6% annual growth in the 4Q, from the 5.9% growth estimated previously, against the market consensus, that called for a revision to 5.8%.
Forex: AUD/USD mixed and trading at 0.9085
FXstreet.com (Sydney) – The Aussie has had mixed results against the dollar and is trading at 0.9085. The pair opened on 0.9081 but has been as low as 0.9058. Since then, the pair maintains upward tendencies in the fifteen minute charts. The pair maintains support at 0.9050, resistance at 0.9109 and is considered slightly bullish.
The AUD continued its falls against the dollar on sovereign debt concerns. The Aussie is however at historic lows against the euro. The EU has finally agreed on a Franco-German proposal to rescue Greece that includes the IMF. The ECB president, Trichet, is however of the opinion that Europe alone should resolve the crisis. This hurt the euro, benefiting the USD. The AUD rose to its highest level against the euro since its inception in 1999.
