"The market is definitely open for business, but it is very fragile," said the head of Asian equity capital markets at one US investment bank in Hong Kong, who declined to be identified.
"The advice I am giving to issuers is: where you can, accelerate and get to market as quickly as possible. And with interest rates at these levels, I would also be gearing-up to the eyeballs," he added.
Some $5 billion of equity and equity-linked paper is in ex-Japan Asia’s deal pipeline for first quarter pricing, far above the $3 billion sold in the first quarter of 2001. Inspired by rallies from September lows that added about $120 billion to ex-Japan Asian benchmark stock indices, sellers hope momentum will be sustained by a long-promised global economic recovery, a rebound in semiconductor prices and cheap valuations of Asian stocks relative to their US peers.
Money managers are cash heavy after a mainly grim 2001 when September 11 attacks against the United States compounded the worst global economic conditions in 30 years. Non-Japan Asian firms sold no equity in August and September and only $300 million in October, the driest spell in three years that delayed $25 billion worth of 2001’s planned deals into 2002 and forced funds into a hasty game of catch up.
But taking profits is tempting. Valuations have vaulted up to discount the next corporate earnings peak in 2003, while fund managers know that bad news for 2001 profits will pound the markets over the next three months and analysts expect key indices to fall 10-15 per cent.
"When you get the rallies, funds are very nervous about being caught underweight and then when things get wobbly, they worry about not being able to get out," Nick Andrews, Credit Suisse First Boston’s Asian equity capital markets chief, said.
And especially when the external environment is so uncertain. Global credit quality is at its worst in a decade, the Japanese yen is in serious decline and US Federal Reserve chairman, Alan Greenspan, says that near term risks to US recovery remain significant despite having cut key interest rates to 40-year lows of 1.75 per cent through 2001.
The timing of the end to US rate cuts is crucial for Asian dollar bond issuers with deals worth about $4 billion planned for the first quarter seeking the best financing terms possible.
"The push is more from the issuer side than the investor side. There is some pent up demand, but at these levels issuers know they’ve got to come out as soon as possible," Sit Sei Wei, director of debt market origination at ING Barings said.
Squeezing the last few basis points out of the easing cycle could leave some issuers with a sour taste in their mouths, especially if risk aversion begins to rise with interest rates. "It’s pretty interesting that Argentina can default on $130 billion worth of debt and nobody seems to care. Add Enron’s collapse and that’s two huge events in a very short space of time and so far, the credit market has not really reacted," an investment banker said. Admittedly, the $1.5 billion of Asian dollar bonds sold in the third quarter of 2001 was the lowest in the previous 10, but the fourth quarter’s $6.6 billion was a near record, said Richard Stoddard, debt capital markets chief at Merrill Lynch.
Bankers are not sure what it will take to send Asian bond buyers into shock, but that see-saw swing is indicative of investors’ underlying uncertainty. "Is the (shock) event Argentina I wouldn’t say so. Investors have been aware of the situation in Argentina for months and their response has been to clearly differentiate between markets," Stephen Roberts, head of Asia Pacific fixed income at Salomon Smith Barney, said. Equity bankers also appear equally unfazed by Argentina. — Reuters