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April 2008 | ifr special report | 7 NON-CORE BOND MARKETS ROUNDTABLE

Sjaak-Jan Baars, Rabobank; Moti Jungreis, TD Securities; Holger Kron, Deutsche Bank

Moti Jungreis: That all depends on the ability of those countries to develop their capital markets. Some of the problem with Africa — and there have been a couple of deals — is that the system for making payments is very, very poor.


you try to make payments in those countries for over US$10m, it is not that easy.

I think that is the challenge that a

lot of people will face. How much do you want to rely on the infrastructure in the local marketplace? If you do it offshore, if you manage to get your clearing done through London, through an internation- al bank, you will probably be in better shape. But again, you have to get liquidity and

a good underlying infrastructure in the swap market. I think this crisis will end but people are worried about those things. People want to make sure that they are clearing through a bank that is going to be out there and survive the crisis, and they want to make sure that payments can be done in an orderly manner.

I think that Africa still has

issues around it, but I agree that if people can develop things and get over that, then the banks that are locally involved in Africa will be very well positioned to get some funding done, which is something some of them have already managed.

Isabelle Laurent: One thing that is also worth looking at is the fact that most of these emerging markets actually have

independent central banks that are taking inflation seriously. So, many of them are looking to raise interest rates at a time when you are seeing the US and Japan with extremely low rates, which are possibly going lower. Therefore, the play is still there, the interest is still there. Many of them are also expecting to allow their currencies to appreciate in order to help curb inflation. So, you have the two-fold aspect of possible interest rate correction — and certainly large differentials — and a currency that is likely to strengthen. That is going to underpin these markets very significantly. One of the things that I think is also

worth noting is that the investor base has changed for many of these products. For instance, when we started issuing rand or Turkish lira, it was back in the 1990s and the demand was coming from Central European institutional investors, sometimes from US institutional investors, and occasionally from Italian or Swiss retail. Now, a significant portion of that demand comes from Asia. You still get those others underpinning these markets, but, actually, you now have a much bigger international investor base, as well as the domestic investors themselves, which are also a growing part of the story. So, I think that we are seeing a lot of

different players in those markets, which has been an evolution and may not have be so noticeable. If you have been issuing

People want to make sure

that they are clearing through a bank that is going to be out there and survive the crisis.

rand for the last 12 years, pretty much year on year, the investors are completely different, or at least a significant proportion of them are. I think that will continue to be the basis of what we are going to see going forward. So, what is sexy one year may be sexy to a different audience another.

Holger Kron: There will always be winners and losers in these currencies, but I think the market will probably focus on the more developed currencies. African currencies will probably grow quite a bit in percentage terms, but in real dollar terms, they will never come close to Turkish lira or Brazilian Real, because those are the currencies with

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