JPMorgan ‘Afraid’ of Emerging Market Selloff Impact on Banks; BlackRock, the world’s biggest money manager, Trimmed Emerging-Market Holdings on Fed Taper Concern

BlackRock Trimmed Emerging-Market Holdings on Fed Taper Concern

BlackRock Inc. (BLK), the world’s biggest money manager, said it reduced emerging-market positions, citing concern a reduction in bond buying, or quantitative easing, by the Federal Reserve may curb support for the assets. “We had very little exposure to local emerging-market bonds but have trimmed our external emerging-market positions recently to reduce the levels of risk from this sector,” Scott Thiel, deputy chief investment officer of fundamental fixed-income in London, said today in an e-mailed statement. “Sustained accommodative U.S. monetary policy has benefited these markets and the potential reduction in QE could reduce that liquidity and source of support,” Thiel said.

To contact the reporter on this story: Mark McCord in London at mmccord2@bloomberg.net

JPMorgan ‘Afraid’ of Emerging Market Selloff Impact on Banks

The emerging market selloff sparked by speculation the Federal Reserve will reduce stimulus may cut revenue for investment banks including Standard Chartered Plc (STAN) and HSBC (HSBA) Holdings Plc, JPMorgan Chase & Co. (JPM)’s Cazenove said.Emerging markets are going through the most disruptive period since the collapse of Lehman Brothers Holdings Inc. in 2008 based on the rise in equity, currency and rates volatility, according to the JPMorgan unit’s report titled “Fed Tapering: Who is Afraid of EM Selloff? We Are!”

The swings may cause a “material slowdown” in emerging market fixed-income revenues with volumes “drying up,” Cazenove analysts includingKian Abouhosseinin London wrote.

Cazenove said it’s more concerned about Standard Chartered and HSBC because of higher revenues related to emerging markets. It’s in “wait-and-see” mode for European banks with lending or earnings in Brazil, South Africa and Mexico, including Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), according to the report.

Standard Chartered spokesman Jon Tracey declined to comment as did Paul Tobin, a Madrid-based spokesman for BBVA, and HSBC spokeswoman Archana Achuthan. A spokesman for Santander wasn’t immediately available to comment.

Emerging market government bonds in dollars slumped 3.5 percent in May, the most in at least three years, according to the Bloomberg USD Emerging Market Sovereign Bond Index. (BEMS) Brazilian government local-currency bonds lost the most since October 2008 last month, according to JPMorgan’s GBI-EM Broad Brazil LOC Unhedged Index. South Africa’s rand has plunged 15 percent against the dollar this year.

BlackRock Trims

BlackRock Inc. (BLK), the world’s biggest money manager, said today it reduced emerging market positions, citing concern a reduction in Fed bond purchases may curb support for the assets.

“We had very little exposure to local EM bonds but have trimmed our external EM positions recently to reduce the levels of risk from this sector,” Scott Thiel, deputy chief investment officer for fundamental fixed-income in London, said today in an e-mailed statement.

The potential weakening of so-called quantitative easing could reduce liquidity and support for the assets, Thiel said.

Investors increased the extra yield demanded on emerging market sovereign dollar bonds by seven basis points to 317 basis points, JPMorgan’s EMBI Global Diversified Index shows.

Cazenove sees December as the most likely period for the first tapering by the Fed, though “if the labor market continues to improve as in the last six months, we would anticipate September for a first tapering,” its analysts wrote.

‘Most Exposed’

“Fed communication about tapering is a concern leading us to put new money only” in UBS AG (UBSN) among global investment banks, the analysts wrote. Credit Suisse Group AG and Royal Bank of Scotland Group Plc are the “most exposed to a slowdown in the securitization market,” according to the report.

U.S. jobless claims declined last week, according to Labor Department figures today, before a report tomorrow projected to show payrolls increased.

“Global investment bank revenues remain exposed to this high volatility in emerging market” foreign exchange and debt, the analysts wrote. “We are less concerned about second-quarter mark-to-market losses but our focus is more on the potential long-term revenue at risk in an ongoing emerging markets selloff.”

To contact the reporter on this story: Ash Kumar in London at akumar314@bloomberg.net