Que sera que sera…Petrobras, our January insight, from Catherine Blanc-Adams and Raphael Antoine, looks at the interesting world of the Emerging Market commodity sector, and in particular Petrobras.
Emerging Market debt, once the darling of investors, has been suffering continuous outflows for the last nine months. Peak flows out of bond funds have been comparable to the worst post crisis periods of risk aversion – the Euro crisis of summer 2011 and the tapering fears in November 2013. This reflects several different factors. On the one hand, uncertainties about China’s growth prospects are affecting sentiment and on the other fresh lows in oil prices are affecting investor demand for EM debt – about a quarter of EM debt is directly related to oil either because the debt was issued by oil and gas companies or because the issuer was a sovereign from a country dependent on oil exports. Even EM debt which is not related to oil has tended to trade in line with oil prices because of concerns about the effect on wider growth prospects and other commodity prices.