巴黎银行-新兴市场-量化策略-AMLO不再是MXN的风险-20180606-10页_1mb

Summary of EM/QUANT STRATEGY Report

Core Content

This report provides an analysis of the market implications of the upcoming presidential elections in Mexico and Brazil, using FX volatility smile data to estimate the implied probability of currency movements. It highlights that the market has largely priced in the election risk for both countries, with a focus on the Mexican peso (MXN) and Brazilian real (BRL).

Key Findings

Mexico

• Election Risk Embedded: The FX option market indicates that the election risk is fully embedded in MXN prices.
• Front-loaded Risk: Market participants have front-loaded the risk, primarily focusing on NAFTA negotiations.
• Equal Probability: The probability of MXN appreciating or depreciating due to the election is almost equal, with a ~50% chance of a ~3% movement.
• Market Outlook: The market no longer expects a substantial MXN move due to the election, as AMLO has a significant lead over other candidates.
• Probability Density Function (PDF):
  • On 4 June 2018, the probability of MXN appreciation was 50.9%, with a mean of -2.7% and a 95% confidence interval of -8.8% to -0.4%.
  • The probability of MXN depreciation was 49.1%, with a mean of 2.8% and a 95% confidence interval of 0.3% to 10.5%.

Brazil

• Two Rounds of Elections: The Brazilian election involves two rounds, scheduled for 7 and 28 October 2018.
• Implied Probability: The market suggests an 84% chance of a slight BRL appreciation and a 16% chance of an 8% depreciation.
• Fatter Tails: The current probability density function shows a fatter tail for depreciation compared to the last update.
• Historical Analysis: The report includes historical probabilities of BRL movements since June 2017.
• PDF Insights:
  • On 4 June 2018, the probability of BRL appreciation was 83.9%, with a mean of -1.5% and a 95% confidence interval of -5.3% to -0.2%.
  • The probability of BRL depreciation was 16.1%, with a mean of 8.0% and a 95% confidence interval of 0.9% to 29.6%.

Methodology

• The analysis uses FX volatility smile data before and after the elections to calculate the implied probability of an event.
• The election probability density function (forward jump PDF) is modeled as a mixture of two lognormal distributions: one for appreciation and one for depreciation.
• For Brazil, the PDF is calculated from the day before the first round to the day after the second round.

Additional Information

• The report is a follow-up to a prior publication titled "Elections in Mexico and Brazil: What's changed?"
• It is produced by Banco BNP Paribas Brasil S.A. and includes insights from strategists and economists.
• The report is non-independent research and is intended for professional clients and eligible counterparties.
• It contains performance data based on back-testing and is for illustrative purposes only.
• The information is subject to change and does not constitute investment advice.

Legal and Compliance Information

• The document is not investment research for the purposes of MiFID II and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
• It may contain "Research" as defined under the MiFID II unbundling rules, intended for firms in scope of the rules and those out of scope.
• The document may be distributed only to relevant persons as defined by applicable regulations.
• BNPP may have financial interests in the issuers or securities mentioned, and may engage in transactions inconsistent with the views expressed.
• It is for informational purposes only and does not constitute an offer to sell or purchase any financial instrument.
• The information is not guaranteed for accuracy or completeness and should not be relied upon as such.
• BNPP may use or act upon the information contained in the document before its publication.

Important Disclosures

• Options: Complex instruments not suitable for every investor, with a high degree of risk.
• ETFs: May involve tracking error, currency, and geopolitical risks. BNPP may have conflicts of interest.
• Securities: Certain securities may be restricted and only available to qualified institutional buyers or non-US persons.
• U.S. Distribution: The report may be distributed only to specific institutional investors and not to U.S. persons unless authorized.
• U.K. Distribution: The document is communicated by BNPP London Branch, authorized by the ECB, ACPR, and FCA.

Conclusion

The market has largely priced in the election risk for both Mexico and Brazil, with a slightly higher probability of BRL depreciation than previously indicated. The analysis suggests that the election outcome is no longer a major driver of MXN volatility, while BRL is still showing some risk, albeit with a low probability. The report serves as a tool for understanding market expectations and is not intended as investment advice.