20180126-法国巴黎银行-GLOBAL_WEEKLY_EM_STRATEGY_PLUS_40页_3mb

EM STRATEGY | GLOBAL WEEKLY - 26 January 2018

Core Content

This report from BNP Paribas outlines the current state of Emerging Markets (EM) strategy, focusing on the performance of EM assets, macroeconomic outlook, and key events affecting the region. It highlights the positive sentiment toward EM investments due to strong global growth, synchronized economic expansion, and low inflation. The document also includes insights from various market participants, trade developments, and a detailed analysis of specific markets in Asia, CEEMEA, and Latin America.

Main Themes

1. Strong Growth Supports Positive EM Sentiment

• The IMF has upgraded its global growth forecasts for 2017-2019, emphasizing the synchronized nature of global growth.
• EM countries have shown strong export performance, contributing to positive sentiment.
• Despite strong gains this year, further EM asset performance is expected in the coming months.

2. India's Budget Outlook

• The FY18 budget deficit target of 3.2% of GDP is likely to be missed and rolled over to FY19.
• The budget will focus on balancing fiscal prudence and economic stimulus ahead of the 2019 general election.
• The government may adjust personal income tax brackets or exemptions to provide relief to taxpayers.
• A long-term capital gains (LTCG) tax on equities is unlikely to be introduced, as it could harm sentiment and reduce tax revenue.
• Infrastructure and rural development will remain key areas of focus, with the government aiming to improve the Ease of Doing Business ranking.

3. Asian FX Market Dynamics

• Activity spikes in NDFs and options do not necessarily indicate a trend reversal.
• The USD put call ratio is increasing, signaling a preference for USD downside protection.
• Asian currencies are rising on strong volume, but not at extreme levels.
• The INR is expected to remain stable against the USD but may depreciate in trade-weighted terms.

4. Latin America: Brazil and Colombia

• Brazil's 2018 net borrowing requirement is expected to be lower than 2017, at BRL 637.5bn (USD 203bn), suggesting a more favorable environment.
• Colombia's currency is influenced by domestic factors more than external ones, as shown by principal component analysis.
• The team has taken profits on the short USDCOP 3-month NDF, realizing an 8.4% return.

5. CEEMEA: Turkey and Hungary

• The Turkish Central Bank is expected to raise its end-year inflation forecast to 8.5% from 7.0%.
• The TRY may weaken due to inflation concerns and higher oil prices.
• The Hungarian National Bank is likely to keep rates on hold and may lower long-term rates in the future to support the HUF.
• The team recommends receiving 5y HUF swaps and being long EURHUF.

Key Events and Outlook

Asia

• India's Union Budget (1 Feb 2018): Will be a key event, with expectations of fiscal prudence and potential adjustments to tax brackets.
• Economic Data (31 Jan 2018): South Korea's industrial production, Thailand's trade, and Taiwan's GDP data will be released.

CEEMEA

• Turkey's Inflation Report (30 Jan 2018): Expected to raise inflation forecast to 8.5% and maintain the late liquidity window rate at 12.75%.
• Hungary's Central Bank Meeting (30 Jan 2018): No rate hike is expected, with focus on the IRS tender on 1 Feb 2018.

Latin America

• Colombia's Monetary Policy Meeting (29 Jan 2018): The central bank is likely to remain on hold, assessing the economic outlook before easing.
• S&P and Fitch Ratings Reviews: S&P will review Albania, Kuwait, and Mozambique; Fitch will review Azerbaijan, Macedonia, and Slovakia. Mozambique, Azerbaijan, and Macedonia are under negative outlook, while Slovakia is under positive outlook.

Trade Recommendations

Interest Rates

• Receive 5y HUF IRS: 5k USD, entry 19-Jan-18, current 0.95%, target 0.80%, P/L +7bp, P/L kUSD 35
• Receive 5Y CNY NDIRS: 10k USD, entry 10-Nov-17, current 3.95%, target 3.85%, P/L +17bp, P/L kUSD 60
• Pay Brazil Cupom Cambial Jan19sJan23s FRA: 7.5k USD, entry 15-Jan-18, current 3.50%, target 3.75%, P/L +24 bp, P/L kUSD 180
• Receive Brazil Di Jan20sJan21s FRA: 50k USD, entry 17-Jul-17, current 10.32%, target 9.75%, P/L +28 bp, P/L kUSD 1672

FX

• Long EURHUF: EUR 10mn, entry 19-Jan-18, current 309.79, target 315, P/L 0.19%, P/L kUSD 24
• Sell 3m USDCNY NDF: USD 20mn, entry 11-Jan-18, current 6.370, target 6.2, P/L 2.59%, P/L kUSD 518
• Short USDCCOP (take profits): USD 12mn, entry 12-Dec-17, current 2,810, target 2,800, P/L 8.42%, P/L kUSD 505

Options

• Buy 1-month USDZAR call spread: USD 10mn, entry 08-Jan-18, P/L -0.75%, P/L kUSD -75
• Buy 1y USDHKD call spread: USD 100mn, entry 17-Mar-17, P/L 0.51%, P/L kUSD 507
• Long USDBRL CS: USD 50mn, entry 22-Dec-17, P/L -0.95%, P/L kUSD -475
• Flattening Colombia IBR 9M-18M: 20k USD, entry 10-Nov-17, P/L +4 bp, P/L kUSD 164

Credit

• Long Jun19 USDibonos: USD 25mn, entry 07-Dec-17, current 3.66%, target 3.06%, P/L -33 bp, P/L kUSD -606
• Buy Argentina 5Y CDS vs Sell 5Y Brazil/Mexico/Colombia CDS: USD 30mn, entry 08-Nov-17, P/L -4 bp, P/L kUSD -163

Summary of P/L

Conclusion

Despite the strong performance of EM assets this year, the strategy team remains optimistic about further gains in the near term. The focus is on managing risks through careful monitoring of macroeconomic developments, particularly in India, Brazil, and Colombia. Central bank interventions and policy decisions will play a crucial role in shaping the future direction of EM assets.