-- [B] EMTA pegs Q2 emerging market debt volume at $681 bln, -9% on Q1 -- By Felix Salmon, BridgeNews New York--Aug. 15--Trade in emerging-market debt instruments slipped slightly in the second quarter of 2000, the Emerging Markets Traders Association (EMTA) said Monday. The drop in trading volume would have been much larger had it not been for a large rise in turnover in local instruments in Mexico and Hong Kong. * * * Total trading volume in the second quarter was $681 billion, down 9% from the $749 billion seen in the first quarter, but up from the $630 billion registered in the second quarter of 1999. The total of $1.43 trillion in first-half trading volume marks a 23% rise from the $1.16 trillion seen in the first half of 1999. The biggest change in the numbers was the proportion of trading which took place in local debt instruments. While Brady bonds and eurobonds saw volumes decline 14% and 21% respectively, activity in local-market instruments soared 28% to $231 billion during the quarter. For the first time, local-market debt was the most frequently traded asset class. EMTA's category of local instruments is limited to foreign trading--deals done outside the jurisdiction of the issuer. The gain in local-market volume was more than accounted for by increases in trading local Mexican and Hong Kong debt. Mexico saw $81 billion in local debt volumes change hands, up 75% from the $46 billion seen in the first quarter. Meanwhile, trade in local Hong Kong debt sky rocketed 380% to $32 billion in the second quarter from less than $7 billion in the first. Much of the increase in Mexican volumes is likely to be a one-off, as analysts noted that investors speculated during the second quarter on the probability of a smooth Mexican presidential election. Mexican local debt is often used as a proxy for local market sentiment generally. The volume figures for the largest countries outside Mexico look much less impressive. Trade in Brazilian debt fell 14% to $196 billion from $228 billion, while Argentine volumes slumped 25% to $83 billion from $111 billion. And even the modest rise in volumes of the benchmark Brazilian C bond, to $60 billion from $58 billion, bespeaks a lack of liquidity in the market as a whole: often the C bond is used as a proxy for emerging-market debt in general, precisely because other instruments are very difficult to trade. Some of the decline in volumes can be put down to a fall in primary-market issuance. According to Chase Securities, eurobond issuance slowed to $15.3 billion in the second quarter, a 58% drop from the $36.3 billion issued in the first quarter. Any new eurobond issue is followed by a flurry of trading until it settles down into more stable hands. The crisis-hit countries which saw a lot of volume in the first quarter went back to more normal levels in the second: Ecuadorean volume fell to $1.4 billion, down from $5.9 billion in the first quarter and $9.8 billion in the second quarter of 1999. It is likely to pick up again in the third quarter, during which time Ecuador has successfully restructured its Brady bonds into new global bonds. Volume in debt issued by Ivory Coast also retreated, to $403 million from $1.5 billion in the first quarter, following the Ivorian government's failure to make its Brady bond payments on time. In contrast, trading increased in Nigerian debt. The country recently announced that it has appointed advisors to examine the possibility of a debt restructuring. Nigerian trading rose to $1 billion in the second quarter, from $628 million in the first. The enormous rise in Hong Kong's volumes helped Asia's share of the market soar to a record 11.0%, from 6.7% in the first quarter and 4.2% in the fourth quarter of 1999. Latin America's share of the market retreated concomitantly, to 67.5% from 70.6% in the first quarter. End (Back) to felixsalmon.com