Seeing EM Fund Outflows Accelerate, More Pain To Come: Sassower

Damian sass Our, fixed income strategist for Bloomberg Intelligence, joins us now to tell us all about how it is the worst year since two thousand four for emerging market box that was quick. Well, it's just a month ago we were here talking about how great emerging market. That's my point. And what happened in the last month at the dollar, right, I mean we've and talking about the dollar for so long, about dollar strength and how it's

just managed to be this one way street. And since that's against the your right now, one thirty five against the pounds sterling and one o nine against the Japanese. Yeah, him, it's amazing. You know, everyone always looks at the G three currency crosses, but it's China. I have to tell you it's been the remnimbi that that is, that is what's changed, right, I mean, for the past year, you've seen the Chinese wand basically on a one way street

appreciating relative to the dollar. And that turned about a month ago in mid April, and that's what drove everything here. China dubbishness kind of crept in and people started to say, we'll wait a second now, Um, maybe the PBSC is gonna let the currency depreciate, and what does that mean for the you know, what does that mean for the dollar? And of course people woke up to the reality that well, that's that's good for the dollar and that's bad for

you am. So just to sort of walk through the logic here, typically when the dollar strengthens, that means all of these developing nations that have borrowed a lot of hard currency assets what a harder time paying back their debt.

Is that the main reason here, Well, that's one element of it, right, I mean, you're obviously talking about all of the emerging market UH borrowers who have issued dollar debt, but their local government debt, you know, their local currency debt is what the real killer here is because the currency it's dominated in is no longer worth what it's written on. So that is part of the issue. Now here is the question, have we reached a point where the sell off has escalated to such a degree that

people are coming in and buying buying opportunities. I'll tell you what I mean by that. But the buying opportunities that we've seen in EM debt have only been an i M dollar debt, and they've only been idiosyncratic opportunities in names like Tava, which had sold off significantly or at a brash But certainly we have not seen new money coming in and saying these are attractive levels we're

getting paid. You know, we're getting attractive yields, attractive carried and i M dollar debt to go in at this stage, we're not seeing that yet in factor seeing fund flows accelerate of fund outflows accelerate right now. So I think we still have a little bit of pain left left

ahead of us. But fundamentally e M is still you know, in a relatively good place relative to where it's been just in during the less paper uh and and another you know kind of a venture of a you know, sort of event risk elevated event risk environments, and so you know, I think this is a correction that's long overdue. Um. I think we gotta wait and see it play through.

I think, though, UM, the real interesting dynamic within emerging market debt right now is local currency yields are actually below and on a duration adjusted to basis, are about to sink below em dollar yields for the first time since the global financial crisis. So you are not getting paid to go local in e M. And oh hey, by the way, currency volatility is way more volatile than than than e M dollar spreads, and that's a real

risk Argentina. Go ahead, that's not the punch line. That's the question Argentina, so so blended yields uh in Argentina right now dollar yields. So the risk here is do we go out and try to, you know, take a punt on getting a twenty pay out around UM in Argentina dollar bonds with the currency risk and the currency

volatility that has just been absolutely off the charts. I mean, I think it's down in the last three weeks since we spoke last you know, I'm struck by and and PIM you mentioned Argentina and This is a perfect segue. It's not just Argentina. You have Turkey, you have the Philippines raising rates in order to support their currency. You

have others as well. So yes, on a whole, perhaps emerging markets are in a better position, which you have these trouble spots that are very troubled spots with increasing trouble. And I wonder, especially given the fact, as we've talked many times before, how much money went in through indexed strategies trying to get ahold of the entire complex of emerging markets, how much just a couple of bad names

contained the reputation and cause a flood of withdrawals. Absolutely, I mean this all begin with Russian and in many respects this is really like as soon as Russia and the sanctions on Russia, Russol and all that kind of started to hit and people started to reevaluate. What We'll wait a second here, the rubles now off ten percent? What other countries are vulnerable? You know, what does this

mean for Turkey? What does this mean they actually have oil? Well, yeah, you're right right, I mean a lot of countries don't have that commodity base. You know, it's it's but what we're so far off and by the time they actually drive for some of that deep sea oil or gas whatever is under the base. And I mean we might be an electric powered economy. So we really can't you know, we can't obviously model that in I think I think for me and for what what we're looking at is,

you know, Argentina is a funny one, Pim. I mean, you know, it's just come back online, it's a serial default or it's got its own set of risks. But Turkey, I think we're getting to a point here, you know, where you have to you just have to take a look at it. I mean, some of the yields I mean are just you just have to take a look at it, you know. And certainly Turkish financials, which I get. You know, there's a lot of there's a lot of negative narrative around guarantee and bank and and and all

that's going on in that sector. But I mean, you know, some of those banks are bell Weather, some of them are are you know, fundamentally healthy right now and um and so you have to begin to look at those at those opportunities. I can say, Tim, is it right here, Damien. He has a very strong stomach to be recommended, saying fields are very high, they are high fial. Look, you know there's this. We have an election coming up in Mexico. Yeah. Uh,

and uh. The Mexican economy, at least the government part of the economy, depends a lot on oil revenue. The leader in the polls is basically saying we don't want foreign investment in the oil economy. Yeah. Yeah, Now, I mean that is a risk, right, I mean, um am Loo is definitely leading in the polls, and for all intents and purposes, he is probably gonna be there. But I do I I'm not going to recommend it. But one area that does look rather attractive. And I'll tell

you why. Our Mexican high grade debt short duration. And that's like an America Movil or a Televisa. And the reason I say that is Mexico tends to track, especially in Mexican dollar debt tends to track US debt, right, US high grade debt and US high grade debt. I mean, with the front end of the curve kind of ratcheting up here, I mean, you've got some attractive yields now and names that were you know, I mean, you just couldn't.

You couldn't invest in it before because you just weren't getting paid to own American mobile bonds, and now you are and short duration American mobile bonds. So I think in some pockets of the market, Brazilian financials, for example, Brazilian has one of the steepest yield curves out there. So you think, you know, steep yiel curve is good

for for the financial sector. And it's also short duration debt, right, because I mean, that's that's the buzz, right, you want to go short duration, and so that's another area you may want to take a look at as well. It's how Bradesco some some banks there that might might look pretty interesting at these levels. Amazing, really really interesting. Damian Sassare,

thank you so much for being with us. Damian sassaur It talked about how a month ago it all looked different, but not to him back to back in a month and it will be completely different. You get to his chair. Fixing Cup strategist at Bloomberg Intelligence, joining us here at

the Bloomberg World count Quarters thirty Lexington. We are broadcasting live from Bloomberg's Business of Equality Summit, bringing together business leaders and thinkers to talk about how to make the workplace a better, more equal, and comfortable place for everybody. We are broadcasting from Bloomberg Business of Equality Summit in

New York City are corporate headquarters. We bring together business, academic and political leaders, as well as the leaders of nonprofits to talk about changes in the world of business and equality and diversity. Joining us now is Elizabeth A. Yama Yaro, a senior advisor to the Under Secretary General and Executive Director of the United Nations for You and Women. She's also the global head of the u n S He for She Movement and you can follow her on

Twitter at e Underscore Yama Yarrow. But there is an end before that. Um Elizabeth, thank you very much for being with us. Tell us what is the Heat for She movement? It is the global solidarity movement for gender equality that was set up three years ago to engage men and boys as part of the solution. So we are waking at grassroot level, but also working with global companies, global CEOs, heads or states academia to create tangible solutions

for gender equality. So how much does war impede these uh, these issues that you're focusing on, Because if I think about gender equality, I think about equal pay, but then I also think about the reports that we hear out of Syria or other places where there is war and women are getting raped and killed, or India for example. So talked a little bit about that this is actually one of the crisis of our time, the issue of gender inequality, because when you look at every single level

of society is socially, economically, politically, women are not doing well. Uh, there's lack of representation, but there's also abuse. Um the issue of violence that you mentioned. Globally, one in three women will be subject to violence in their lifetime. That's one billion women working around wounded. So the issues of gender equality really we're in a crisis moment and we've got to figure out a where that we can you know, support women and girls and and really create tree equality

in these societies. Can you just offer an example of one of the experiences for the He for She movements something that has actually taken place. The biggest achievement that we've done is to create this initiative called the Impact Initiative, where we engage ten heads of states from the Prime Prime Minister of Japan, Prime Minister of Canada, to Wander Malawi, um to the Scandinavian countries and also global CEOs, whether

it be the chairman of PwC. We was just with on a panel today at the Bloomberg Summit um too, you know, UNI Live, et cetera. But the biggest thing that these champions are doing is they have identified critical policy areas that they are going to literally achieve parity on by twenty So if you look at p w say, we're here today talking about how the company have been able to move the data point in their global leadership team from eighteen percent in twenty fifteen when they joined

the here Foreshen movement to for within fifteen months. So who has been the least receptive of the world leaders who you've spoken to? We again, here for shas an open invitation to those that want to be on the rest side of history. And so what we've done was to really issue core to action and we ended up with those leaders that actually want to be part of the change. So who is notably absent? I don't think I can single out anyone. It is a pilot initiative.

So we started with ten countries in terms of governments, and the ten companies the countries that came to us. I've really defined some concrete change. Malawi is on. You know, they have now outlawed child marriage as part of the Heathshire Commitment. In a spece of twelve months, the chiefs, the male chiefs in Malawi worked with the female chiefs and went around and are now more than three thousand, five hundred child marriages and these girls are now back

in school. So we are seeing that those those who want to build the rest sort of history are doing something very concrete and very inspiring. Can you talk a little bit about your own background and how you came to be part of this UN initiative. I grew up in a tiny village in Zimbabwe and when I was eight years old, the United Nations came into my village. We're going through one of our West drought and I was starving. I had not eaten for several days and

literally the UN saved my life. A young woman who happened to be Zimbabwe but worked for UNI SEV found me underneath the street, give me a ball of hom

porridge and literally, you know, I survived. And I knew from that early young age that I wanted to work for the U n and so I pursued that vision and have now been with the UN for fifteen years, working for different entities from UNA's in Geneva who I've also worked at the World Bank, and now I'm with You and Women as the senior advisor to the under Sector General. So how young were you when you loved Zimbabwe?

So I left Simbabwe in my early twenties, moved to the United Nations with two fifty pounds to my name, with not friends or family. I had my dream though, to become this young girl who worked for the United Nations, wore a blue uniform, and I ended up, you know, studying political science and the London School of Economics. And and here we are well, thank you so much for joining us. So really fascinating to speak with you, and we will she the best of luck in the initiative.

Elizabeth Yummy Yarrow is Senior Advisor to the Under Secretary General and executive director of You and Women. She is also the global head for You and He for SHE movement. She is joining us here from the Bloomberg Business of Equality Summit in our seven thirty Lexington Avenue headquarters here

in New York. Really interesting, and it's definitely interesting to hear about all of the different challenges and sort of uniting thread between them all through different nations and different challenges. They're sort of a disconnect in Silicon Valley where you think of a sort of socially progressive and liberal attitude, while the pay gap between the genders has widened and

there's talk of the Broo topia. The Emily Chang of Bloomberg Television wrote about here to talk about how to make the tech world perhaps a little bit more equal is a Neil dash He is chief executive of fog Creek Software in New York. He also was an advisor to the Obama White House's Office of Digital Strategy. We're so glad that you could join us. Thank you for being here. So what is sort of at the root of this inequality that persists between the genders even in

Silicon Value. You know, there's there's a lot of good intention, as you said, and then there is the self reflection and the challenge of changing yourself and saying what am I doing wrong? Is it just thinking the right things enough to get it done? And then there is I think the slightly more legitimate excuses we're moving a breakneck speed. Everything is changing really rapidly. I'll get to fixing all

this social stuff once everything is settled down. Of course, there is no settling down at tech, and so they sort of, you know, kick the can down the road a lot, and that's that's the most charitable interpretation. And then we have people that that say they care and just don't you know, which is one of those things that we have to reckon with as an industry. I think all those things combining together to close off a lot of opportunity, um, you know, for the for the

companies that aren't involving in that way. In our case, we're small independent company. Um we we we build a cycle called Flitch, which is like a YouTube for coders.

So we're competing for talent with Facebook, with Google. Um by us being able to plan a flag and say we're really going to stand on you know, meaningful measures that push for equity and push for inclusion, that's been a competitive advantage for us, Even things like simply doing salary transparency where people know what their salary is going

to be when we hire them. That opens the door to us attracting talent that others can and Neil, could you just describe a little bit of your background in the world of blogging, so pea understand how you came to be, I believe one of the few people that could count prints as well as Bill Gates among their

at least their previous followers. Yeah. Yeah, it's a it's a very um you know, social media used to be a small world, right, So I started blogging twenty years ago, and you had to be fairly interested in both technology and media at that point to do both. And so, um, you know, I've been making software. You know, we had the back then it was you know, Windows ninety eight or whatever it was. Yeah, this sort of um, conventional

software industry. But the age six apart was was you Yeah, yeah, I was the first employee there, and we made tools like movable type, which was one of the early blogging tools, and um, and people took that and used that to make huffing and post or to make gawk, or to make all these sort of you know, really prominent early media sites. And like I said, you were combining technology and media. And you know, in Bloomberg that might be pretty obvious that a lot of other places it wasn't.

And um, and so that was one of those moments where we realized what in retrospect became social media would be the thing that defined technology to people even more than uh, you know, using a spreadsheet program or something like that. And so out of that that sort of community of people that were paying attention that came a lot of the early social network and social media platforms, as well as a lot of the sort of big innovators and adventures that I think have gone on to

become household names. Does does it ever cause you some kind of irony that the social media explosion has come back to create I don't want to say a social media, but certainly social media where you don't know who's behind the information, you don't know what their agenda is, and there's very little way in which you can track it

and hold people accountable. Yeah, there were, you know, there were a lot of maybe faulty assumptions is one way to put it, or even just sort of shortsighted assumptions about how the systems were designed, you know, the the idea when you're building tools. In two thousand or two thousand five or two thousand and six on Twitter launched that maybe a billion people would show up and use your tool would be absurd. So so this idea that they were going to design to anticipate that was a

little unexpected. I think what became of that was assuming everybody who's gonna be part of the same community is part of the same clique. Didn't anticipate the values everybody had, didn't anticipate building accountability for everyone. So given that, and given where the social media world has come from, do you think that Facebook and uh it's rivals have adequately addressed some of these security concerns as well as some of the social concerns. Uh No, you know, there's so

much more to do. And and this actually goes to the earlier point about inclusion in the industry. If if more of the people in power at Facebook and these other companies where the people that get targeted and harassed online or to get marginalized by these technologies, I think you would see very different designs and very different prioritizations other products. I think they're starting to reckon with it.

I mean, there are a ton of good people at these companies and they want to do the right thing. But it's a lot easier to prevent than it is to try and cure after the harms have already been caused. That's what I was going to ask, is it's one thing to go and consciously try to be diverse, But isn't there some kind of business advantage have you found to hiring people with different points of view? Yeah? Yeah, I mean you you end up with them anticipating uh,

you know, flaws or weaknesses. And I look at this as sort of um, you know, and and the conventional tech industry that things that everybody pays attention to our security scalability issues like that, and you always anticipate it. You sort of say, this is the next area where we're gonna have to anticipate an area of vulnerability. I look at the same thing with culture. Culture debt is just like technical debt. It's something that you um one

way or another. You're gonna pay right one way or another. You're gonna have to address these things that you were shortsighted on or that you underinvested in. Why not be preventative. I look at it as you know, it's the right thing to do morally and ethically, that's where it starts. But it's also a great way to manage risk as a company that's, you know, really operating extremely competitive environment. Let's reduce our risk and increase the odds that we're

gonna be able to compete against these giant players. I want to thank you very much for joining us. You're gonna be blogging about this right absolutely and tweeting about it too. Well done. Thanks very much. That she is the chief executive of fog Creek, a software one of the many attendees here at the Business of Equality Summit at our New York City corporate headquarters and brings together a variety of business, academic and nonprofit leaders to talk

about equality and diversity in the workplace. A sixty two billion dollar bet on orphan drugs to treat diseases such as Hunter's syndrome. That's the case of Takeda Pharmaceuticals and it's sixty two billion dollar deal to acquire Shire. Here to tell us more is Max Neeson, biotech, parma and healthcare columnist for Bloomberg Opinion. You can follow Max on Twitter at Max Neeson nets and I S. E. N. Max.

Why is Takeda spending sixty two billion dollars on Shire? Well, I think they're really desperate for for some combination of geographic and and drug diversification. Uh, they're pretty heavily dependent on on some older treatments themselves, nothing much in the pipeline, and also on the Japanese market, which is particularly tough for drug makers given that they have some pretty aggressive

price controls at times. So they were just looking for a way to supplement their pipeline, get into the United States to a greater degree, and also um get into the rare disease drug market, as you mentioned. So let's talk price. This sixty two billion dollar price tag includes a thirty one billion dollar bridge loan that makes it the largest such borrowing ever by a Japanese company for an acquisition. What do you think do you think that

this is fairly value in Shire? Um? You know, considering that that it traded close to the levels that it's being bought at last year, it doesn't seem like an enormously expensive deal on that kind of metric. But in terms of the amount of death that's being raised here, the damage that's being done to Takada's balance sheet, H, then you have a little bit more in the way of questions. Just because there there are some risks here.

Shire is pretty heavily depending on the team affiliate business, which is facing some competition now and will in the future from potentially curative gene therapies. And also just in terms of integration risk and the level of synergies that

Takeda is targeting both more than the usual. So definitely a lot of risk given the amount of death that's coming into play here, because Shi already had on the role of eighteen point five billion in debt on its books, So this is gonna be one of the more leverage pharmacy cool companies in the world if this deal is completed, Max. Just to go to this issue of orphan drugs, rare diseases, the one I was just gonna use as an example is La Praise and Ella Praises, the drug that Shire

has to treat Hunter's syndrome. The cost of the drug for a full regiment, and I believe it is like three hundred and sixty five thousand dollars and the sales of La Praise were more than three hundred and fifty million dollars a year. That's just for one drug. Is that the kind of number that and the and the situation that drug companies are really looking for yeah, so there are a lot of benefits to that sort of severe disease drugs of that type. You don't have to

spend a lot on marketing. You do have to go out and find the patients and make sure they're getting on drugs. But you know, it's enormously profitable in a way that's different from you know, say, a really competitive area like diabetes, where you have to fight against a bunch of similar drugs for every single patient, pay huge rebate rebates to insures in pharmacy enefit managers. So I think that's one of the things that that makes us attractive as well. What's the risk of failing to integrate

the two companies? Well, I mean, when you're talking about the debt level and leverage, there's a little voice in the back of my head that just keeps saying Valiant, Valiant, Valiant. I mean, is this going to be the same? All right? Thanks, thanks for the name. Oh yeah, well there you go. That makes much Well, of course they don't want the name in the back of the head saying Valiant, But you know, is there a risk that this could end up being something like that, a highly levered deal that

goes bad? I definitely think there is, because you know, you have the biggest ever take over from from a Japanese country company of a drug company. UM that that offers some some potential integration headaches and um as I mentioned those risks of the hemophilia franchise, some other generic competition. If if Shire delivers, especially if it's pipeline delivers less than expected or hemophilia competition is great and expected, you could see a sales slowdown that that makes that debtload

even scarier. Well, well, it's probably not going to be anything on the scale of Valiant, where you know the business kind of just collapsed. Uh still still makes their debt paid down targets which are going to have to be aggressive Uh look pretty risky. Does it matter at all that this is a Japanese and a British company coming together in an age of trade wars and trade concerns.

I mean, you know that that is a potential risk as well considered because things are so volatile, and especially United States, I think the Trump administration has been making some noise about other countries paying it's paying their fair share for medicines. You know, we subsidize a lot of r and d costs UH through paying an outside share of of you know, paying higher drug prices, paying more for medicines. UM. So if that changes that, that's another

potential risk of such a big international UH transaction. Who might be next? Because he tried to buy Shire a couple of years ago. Um. Also there was talk that Allergan was interested in Shire at one point. Who's next? You believed? Um, You know, I don't think there's a particularly acute risk of another company jumping into to kind of mess up to Kata's offer, just given the risk

profile and the cost of the deal. You know, fiser Is always mentioned is the most likely to go for a mega deal, but they were pretty explicit that they weren't interested on their most recent earnings call. Um, but I think fiser Is is due for a deal of decent size, even if it's not Shire, UM Murk as well. The question is whether they're going to go for something of of the big consolidating type or or to try

to poster their pipelines. You know, just to put us in a perspective, to Kata and Shire together would have more than thirty one billion dollars of revenue UH. That doesn't put it in the top five in terms of revenue. It's behind Johnson and Johnson, roche Viser, no Artists, and no Fee Murk Bear lax of Kline. Uh So, definitely an interesting tie up that pushes it into the top ranks, but they are both of much smaller size and some of them on the top five of total debt and

leverage ratio. Though. Well, they can have that that crown and we're proudly perhaps for for the time being anyway, Max Neeason, thank you so much for being with us. Max Neeason is our biotech, farm and healthcare columnist for Bloomberg Opinion, joining us here in our leven three oh the studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramoids one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.