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April 2008 | ifr special report | 13 NON-CORE BOND MARKETS ROUNDTABLE


“ David Smith, JPMorgan; Isabelle Laurent, EBRD


dollar, so, I think, for them, it is all about diversity out of the dollar.


David Smith: But you also have a bigger investor community of dedicated emerging market funds who are benchmarked against GBI-EM, so Turkey will be a 10% weighting in their portfolios, and sure, they can be underweight on it and hold 5% positions, whether they be local government bonds or benchmark issues like the World Bank 17s, but they funda- mentally invest in these markets for the long term and they are not going to day- trade them or even trade week to week. So, yes, you are always going to have


bonds being recycled, and the market is developing in the sense there are more dealers quoting hopefully more of the same deals, but, to be fair, liquidity hasn’t really been tested because these investors can fine-tune on the margins, but, funda- mentally, they are buy-and-hold investors because they have seen more inflows into those [emerging markets] funds. It would be very different if everyone decided to get out of emerging markets completely and you saw mass redemptions in terms of funds, but, right now, we are, a long way from that scenario happening.





IFR: With regard to the liquidity and the increase of prices available, to what extent have new players such as JPMorgan made an impact?


David Smith: I think new players will always make an impact. I guess the question is whether they are there for a short-term impact or the medium or long term: and only time will tell. Clearly, for investors, liquidity in markets, or, probably more importantly, the perception of liquidity, is increasingly more important because of how they make their investment decisions. Certainly, as a dealer you have to justify to your manager positions that you hold on your own books, and I think there is the same pressure on the investor community, given events over the last six months. So I think investors will always want more entrants into the market and they would like them to be there for the long term as opposed to here today, gone tomorrow. As far as JPMorgan is concerned, we


have been not in emerging market Eurobonds for a very long period of time, but emerging markets has been a core part of the JPMorgan franchise. So it is a new sector for us, but I don’t think


I think new players will always make


an impact. I guess the question is whether they are there for a short- term impact or the medium or long term: and only time will tell.


anyone is going to question JPMorgan’s commitment to emerging markets in terms of derivatives or local markets, and, certainly, we think we will add long- term liquidity to the market. Clearly, some entrants will be more short-term players and more opportunistic, and you have to rely on issuers and investors to d- ifferentiate in terms of how they spread their business out.





IFR: We would not dream of questioning your commitment: we can leave that to your peers! But is institutions like JPMorgan coming into the market a good thing?


Moti Jungreis: Yes, and I think that any bank that has, on the one hand, access to investors and, on the other hand, appetite to take some risk can do well in these markets. So JPMorgan and, if you like, ABN/RBS, could add value to this market. There is no reason to think that we should question their commitment.


Holger Kron: I think the major question arises when the markets become stressed. Experience says that out of 20 houses who quote in normal times, you probably have three to five quotes left. And they would rather focus on liquidity where they promised to deliver liquidity, which is in the bonds they led themselves. So, liquidity is not a


I think the major question arises when the markets become stressed. Experience says that out of 20 houses who quote in normal times, you probably have three to five quotes left. And they would rather


focus on liquidity where they promised to deliver liquidity, which is in the bonds they led themselves.





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