On the 17th of May, 2014, Portugal officially exited the Troika’s financial assistance program without any form of credit lines or other financial support from foreign institutions. This date marked the country’s full return to the international capital markets, a process made of decisive steps that had begun three years before with the arrival of the Troika of international lenders, the International Monetary Fund (“IMF”), the European Commission (“EC”) and the European Central Bank (“ECB”), and that is now complete.
The global economic crisis that is now abating, with progressive recoveries projected for Europe and the United States, had its first symptoms in America in the second half of 2007 with the subprime lending and securitisation debacle, which gained momentum when Lehman Brothers went bankrupt in October of 2008. By May of 2010, a new chapter of the crisis, affecting European Sovereign Debt, could no longer be ignored when Greece asked for financial assistance from the Troika after being shunned from market funding. A similar request came from Ireland in November of 2010 and, by April 2011, Portugal followed suit.
Even after the Irish had requested financial assistance, Portuguese issuers continued to benefit from access to international funding markets. As late as February 2011, the Republic of Portugal came out with a €3.5bn 5-year Obrigações do Tesouro (“OT”), joint-led by Caixa – Banco de Investimento (“CaixaBI”). This was the last Portuguese institutional issue before intensifying investor aversion to peripheral debt forced Portugal to request its own financial assistance program from the Troika, shutting international capital markets for Portuguese issuers, a hiatus that end-up lasting nearly two years.
At that time and as part of the Troika involvement, Portugal would begin an economic adjustment program aimed at restoring external competitiveness and financial stability and placing public finances on a sustainable path through internal devaluation, institutional and markets reform and severe austerity measures.
Portuguese issuers return to capital markets after the summer of 2012
It was only in September of 2012, 18 months into the country’s adjustment program, that a dramatic improvement in investors’ sentiment towards the periphery, coupled with progress made in the program, allowed for a Portuguese corporate, the utility EDP, to return to the wholesale debt capital markets, with a €750mln 5.75% 5-year transaction, attracting an order book 10x oversubscribed. Within one month, two other Portuguese corporates, BCR, the toll-road concessionaire, and Portugal Telecom, had also made their way into the capital markets, with a €300mln 6.875% senior secured deal and a €750mln 5.875% senior transaction respectively, both with a 5.5-year tenor and brought jointly by CaixaBI. In the months that followed, two of the top banks in the country, BES and CGD, had also made their return to international debt markets with four benchmark issues in the three to five year maturity range, of which two were assisted by CaixaBI as joint bookrunner, before the Republic succeeded in breaking its almost two year absence from syndicate issuance in January 2013 with a €2.5bn tap of the Oct 2017 OT.
Late 2012 thus saw the beginning of Portuguese issuers progressively returning to international debt capital markets, a remarkable development given the then still uncertain fallout of the Portuguese rescue program. Save for a brief blip in the summer of 2013 due to short lived political tensions at home, this process would only intensify.
Regular debt issuance is restored during 2013
Positive investor sentiment towards peripheral countries gained thrust during the remaining of 2013, a trend aligned in Portugal with solid program implementation and continuous fiscal discipline together with growing signs of economic turnaround. Driven by an exceptional exports performance, the country posted the first quarterly GDP growth in the second quarter, the highest in the Eurozone at 1.1%, ending a slump that lasted ten quarters.
Capitalising on swelling investor participation in Portuguese debt deals, traditional issuers would step up their comeback to international debt markets in 2013, some at ever low yields. REN, the electricity & gas transmission grids operator, made two appearances in the international debt markets in 2013, with a €300mln 4.125% 5-year transaction in January and, in October, with a €400mln 4.75% 7-year issue. CaixaBI was instrumental as joint-bookrunner in both deals, as well as in Portugal Telecom’s €1bn 4.625% 7-year issue in April. Another utility taking advantage of the favourable conditions twice in 2013 was EDP, deciding for two 7-year benchmarks in September and November. In the financial institutions spectrum, unusual issuer ESFG also decided to tap the market in April, while BES captured investors’ appetite for yield pick-up to issue a tier 2 €750mln 7.125% 10NC5 transaction in November.
The strong momentum seen in Portuguese risk combined with a solid performance evidenced by Portuguese credit spreads in the secondary market enabled first issuers Portucel, the pulp & paper producer, and Galp, the flagship Oil & Gas company, to inaugurate their Eurobond issuance in 2013. The first came to market with a €350mln 5.375% 7NC3 high yield bond in May while Galp launched a milestone €500mln 4.125% 5-year deal in November, the first unrated public institutional bond issued by a Portuguese corporate and one of the largest unrated bonds to come from Southern Europe in the year, a bond jointly led by CaixaBI. During this period of economic adjustment in Portugal, CaixaBI cemented its continuous leadership in debt capital markets in the country with a particular emphasis on the corporate & SSA sectors where it was bookrunner in 2/3 of the issues in the period.
Issuance uninterrupted in 2014 on the back of tightening spreads
Entering 2014, Portugal was mostly seen by investors as a successful case of economic adjustment, much in comparison with Ireland that had cleanly exited its Troika programme in December 2013, and credit spreads reflected those views by continuing their relentless tightening. Some of the main Portuguese financial institutions, in the names of CGD, BES, BCP and Santander Totta, took particular advantage of this favourable backdrop by gaining back some issuance ground after a timid 2013. Collectively they issued six new benchmarks in the first half of 2014 for a total of €4.5bn, evenly split between covered bonds and senior unsecured issues.
On the corporate sector front, EDP, the most frequent Portuguese issuer, kept its issuance drive by opening the year with a $750mln 5.25% 7-year print in January and following up with a €650mln 2.625% 5-year bond in April, jointly led by CaixaBI, that also brought BCR back to the debt markets in March 2014 with a €300mln 3.875% 7-year deal, the only two corporates opting to issue in the first semester.
Besides the increment in the number of investors drawn to Portuguese assets in 2014, also their quality and diversity has been on the rise, with Portuguese issuers attracting a growing number of buy&hold investors and of more diverse places of origin.
Sovereign Issuance and debt management steps prepare Portugal for life after the adjustment program
Portuguese credit spreads showed a notable tightening trend during the period 2012- 2014 across all asset classes, rewarding committed investors with solid returns and luring a growing number to increase their exposure. Representatively, the bund spread in 10-year sovereign bonds touched 326bps (yield of 5.16%) in May 2013 form a peak of 1322 bps (yield of 15.84%) in January 2012 at the zenith of the crisis. This trend gained further momentum into 2014, with 10-year OT bund spreads reaching minimums of 214bps (yield of 3.32%) in June.
Portugal used these constructive market conditions to bring out a number of successful issuances. After the comeback OT tap issue of January 2013, high investor support allowed the Republic to launch a succession of new syndicate issues, in a €3bn 5.65% 10-year OT in May 2013 and a €3bn tap of this issue in February 2014 following a second 5-year tap in January 2014 of €3.25bn of the Jun 2019 OT.
Additionally, IGCP, the Portuguese Debt Agency, took a number of decisive steps to regain full market access. Between December 2013 and May 2014, it conducted liability management exercises and bond repurchases in the secondary market, managing to buyback €2.8bn and extending €6.6bn of the 2014 and 2015 maturities (35% of the amount outstanding), smoothing the profile for future debt payments. It has also re-launched the OT auction programme in April 2014, complementing its sources of funding, and, crucially, it has built a substantial cash buffer of over €15bn that allows it to cover funding needs for about one year. These steps, together with successful benchmark issuance resumed in January 2013, have evidently contributed to putting Portugal back in the debt capital markets in a conclusive fashion.
Portuguese economy adjusts and the country exits the Troika’s program
This debt management process prepared the country to successfully exit the Troika’s financial assistance programme, which with the benefit of an outstanding tightening of sovereign spreads, enabled Portugal to officially opt for a clean exit in May 2014.
According to the Troika’s official statement after its twelfth review mission in May 2014, “the programme has put the Portuguese economy on a path towards sound public finances, financial stability and competitiveness. During the past three years, the external current account has moved from a substantial deficit into surplus, the budget deficit has been more than halved, and public debt sustainability has been maintained. There have been ambitious reforms across all the main sectors of the economy.”
The economy has significantly rebalanced both externally and internally, growth was reignited and aggregate debt is back on a sustainable path. Portugal’s return to the international capital markets is hence now complete.
What should I invest and How do I invest
By Imogen Clarke
With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.
For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.
If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.
There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?
With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:
Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.
So, how do you decide where to invest?
According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.
The main areas of ESG investing include:
- Environmental challenges (climate change, pollution, etc)
- Social issues (human rights, labour standards, child labour, etc)
- Governance considerations relating to company management
According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”
ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.
As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”
So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?
There are four areas of ESG investing:
- Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
- Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
- Positive screening strategies:when companies meet the ESG goals and are approved for investments.
- Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.
You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?
Investment Roundtable: Live with Jim Bianco
With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.
- Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
- Identify important intermarket relationships he is watching with respect to Global Equities
- Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.
Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.
Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election
By Rupert Thompson, Chief Investment Officer at Kingswood
Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.
At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.
The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March. As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.
These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.
The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term. A rise in the unemployment rate to 8% or so later this year still looks quite likely.
Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.
Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.
Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.
It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.
All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.
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