20171020-法国巴黎银行-GLOBAL_WEEKLY__EM_STRATEGY_PLUS_32页_3mb

EM Strategy Summary: Global Weekly - 20 October 2017

Core Content Overview

This document outlines the current outlook and strategic recommendations for Emerging Markets (EM) and Latin America (Latam) from BNP Paribas and its partner institutions. It focuses on the implications of recent economic and policy developments, including the outcomes of the IMF/World Bank Annual Meetings, FX and interest rate trends, and specific trade positions.

Main Themes and Key Points

Global Economic Outlook

• A positive mood was observed at the IMF/World Bank Annual Meetings in Washington, with upgraded global growth forecasts for both Developed Markets (DM) and EM.
• Inflation expectations remain subdued, with the IMF forecasting it to stay in check through 2018-19.
• US fiscal policy and domestic/foreign policy uncertainty are seen as major risks to EM outperformance.
• The US Senate passed a budget resolution, signaling progress towards tax reform.

EM FX and Interest Rates

• EM asset prices have risen significantly, leading to increased investor caution.
• EM central banks are generally less dovish than in previous meetings, with some showing hawkish tendencies.
• FX volatility is tolerated by authorities, and there is a focus on continued FX reforms.
• The PBoC Governor, Zhou Xiaochuan, emphasized the need to liberalize trade, investment, and the FX rate, as well as increase RMB convertibility.

Strategic Recommendations

• Buy USDSGD: USD/SGD is recommended with a target of 1.3850 and a stop loss at 1.3400.
• Stop loss on THB NDIRS: The receive 2y THB NDIRS trade was stopped out due to increased positioning in South African assets.
• Stop loss on ZAR receiver: The 2y2y ZAR receiver trade was stopped out for a 1.4% loss due to loss of momentum.
• Receive Brazil DI Jan20sJan21s FRA: A long position in Brazil DI is maintained, with a positive P/L of 1133.
• Short USDARS via NDF: A short position in USDARS has a positive P/L of 262.
• Short USDBRL via NDF: A short position in USDBRL has a negative P/L of -102.
• Long USDMXN OT 20.0: A long position in USDMXN with a positive P/L of 137.
• Buy USDINR ATMF put: A put option on USDINR has a negative P/L of -72.
• Buy USD/TRY ATMF put: A put option on USD/TRY has a negative P/L of -123.
• Buy EURTRY ATM put: A put option on EURTRY has a negative P/L of -184.
• Buy USDHKD call spread: A call spread on USDHKD has a positive P/L of 507.
• Buy Turkey '45s: A long position in Turkey's '45s has a positive P/L of 85.

Key Country Insights

China

• FX reform is expected to continue, with the PBoC Governor emphasizing the importance of liberalizing the economy.
• The PBoC is likely to maintain a neutral stance on interest rates, with the market reacting positively to recent economic data.
• China's growth is driven by fiscal stimulus rather than credit expansion, with the budget deficit increasing.
• The RMB is being internationalized, and the PBoC is working to support this through various reforms.

Thailand

• The receive 2y THB NDIRS trade was stopped out due to increased FX volatility and the BoT's decision to keep rates on hold.

South Africa

• The 2y2y ZAR receiver trade was stopped out for a loss of 1.4% due to loss of momentum and increased positioning in local assets.
• The central bank is expected to maintain a cautious stance, with a focus on fiscal policy and potential ratings risks.

Mexico

• The FX hedging program is seen as the first line of defense against excessive MXN depreciation.
• The central bank is unlikely to cut rates, and the recommendation is to receive the short-end of the TIIE curve.
• Non-resident holdings of Mexican public debt have increased, indicating continued foreign interest.

Brazil

• The central bank is expected to cut the Selic rate by 75bp, with the curve already pricing in this scenario.
• The belly of the curve is considered excessively high, and the recommendation is to maintain the Dl Jan20sJan21s FRA receiver position.

Colombia

• The central bank is expected to keep rates on hold at 5.25% due to downward surprises in economic data.
• The Colombian Peso is seen as undervalued, with the recommendation to pay IBR and maintain a long position against a basket of currencies.

Portfolio Flows and Market Outlook

• EM portfolio flows are expected to slow in Q4 2017 unless risk sentiment improves significantly.
• In the current environment, the focus is on utilizing cheap hedge structures in Latam FX.
• The IIF flows model suggests that EM and Latam flows will be influenced by the BNPP Global Risk Premium model.

Upcoming Events and Data Releases

Asia

• HKMA: Will end its second round of EFN bill issuances, potentially leading to a third round of HKD 30 billion.
• China: The National Party Congress will conclude and announce Central Committee appointments, with no major surprises expected.
• Key Data: South Korea's 3Q GDP figures, Singapore's CPI, IP, and unemployment data.

CEEMEA

• Hungary: The MNB is expected to remain dovish, with a focus on FX swap facilities.
• Turkey: The CBRT is expected to maintain a tight policy stance, with inflation expected to peak at 11.2%.
• Russia: The CBR is expected to cut policy rates by 25-50bp, with the RUB facing headwinds from steep rate cuts.
• South Africa: The Finance Minister will present the medium-term budget policy statement, likely indicating a revenue shortfall.

Latam

• Brazil: The CCB will meet on 25 October, with expectations of a 75bp rate cut.
• Colombia: The central bank will maintain rates on hold, with the Peso expected to appreciate.

Summary of Trade Positions

Summary of P/L

• Total P/L: +3788
• Rates: +578
• FX: +2933
• Options: +164
• Credit: +113