It used to be that the players of U.S. high finance would barricade themselves when an emerging market turned ugly. Especially if the monster were oversized - say, Argentina in 2002 - they'd frantically seal off every approach.
Like the archetypal Final Girl in a horror movie - the one who outlives her more reckless friends until the nail-biting end - they could only imagine where the maniac lurked: behind the door, down the hallway or right under the bed.
But now the maniac is subprime, an utterly U.S. creation, and it's the emerging market protagonists who are cast as the Final Girl. And there's another difference: She looks a lot more relaxed than scared.
RMBS last week from Mexico and Kazakhstan, plus a fluid deal pipeline in a number of emerging markets, show that America's subprime horror flick simply doesn't translate. It's true that ebbing liquidity in emerging markets overall is pressuring spreads, forcing issuers to adjust from the go-go pricing of the last couple of years. But for EM ABS and MBS, the adjustment's been slight, and, by some accounts, long overdue.
Kazakhstan's first RMBS from BTA Ipoteka (see p. 19) faced some pricing pressure, but that drew what little strength it had from the emerging market retreat, not subprime anxiety.
An even better illustration of subprime's parochial reach was an RMBS from Mexican originator Su Casita (see p. 18). The deal had a B tranche that went for an inflation-indexed 6.47%, pricing a couple of basis points over a comparable transaction from peer Credito y Casa dated last December, prior to the subprime blowup. What's more, all the buyers in Su Casita's B piece were foreign. One source said bankers at lead Credit Suisse pre-empted analogies with U.S. subprime by differentiating Su Casita's borrowers from the moment they launched the deal.
Mexican originators have been arguing for weeks that subprime radioactivity won't spread south as investors will recognize that their collateral is a different species. Still, perception matters and when markets ricochet around, even the vaguest resemblance to something toxic can send foreign investors home. On second thought, if you're an American RMBS investor, home might be the scariest place of all.
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