20151009-法国巴黎银行-GLOBAL_WEEKLY_EM_Strategy_Plus_13页_2mb

EM Strategy Plus Summary - 09 October 2015

Core Content Overview

This document provides a detailed analysis of emerging market (EM) strategies and trade recommendations for the week of 09 October 2015. It includes insights on FX reserves, currency movements, interest rate expectations, and specific trade ideas across Asia, CEEMEA, and Latin America (Latam).

Key Views and Themes

Asia

• Asian currencies rallied sharply due to delayed Fed rate hikes and commodity rebounds.
• Market positioning was heavily short, leading to a rebound in IDR and MYR as short-covering and FX hedge unwinds.
• Expectations for rate cuts from PBoC in Q4 and band-widening from MAS.
• The CNH is expected to firm in Q4 as the authorities regain control and the Fed delays rate hikes.
• The RMB is likely to remain under pressure, but the CNH volatility is still a key area for selling.

CEEMEA

• The FOMC's dovish stance continues to support high beta currencies like TRY, ZAR, and RUB.
• USDZAR is recommended as a Double No Touch (DNT) trade with strikes at 14.25 – 12.75, priced at 18% of notional.
• The 12.75 barrier is "protected" by the steep rate curve, and appreciation is expected to be gradual.
• The 14.25 barrier is less likely to be broken due to low US breakeven curve and the expectation of rate hikes being unlikely in the short term.

Latam

• Latam risk assets benefited from improved EM sentiment and commodity performance.
• In Brazil, the cabinet reshuffle eased political tensions, leading to a rally in BRL.
• The BCB is expected to keep rates steady, with a focus on fiscal reforms rather than monetary tightening.
• In Mexico, Banxico held rates steady, leading to a retracement in MXN.
• Chile is expected to hike rates by 25bp to address inflation.

Key Trade Recommendations

FX Reserves in Asia

• The decline in Asian FX reserves (ex-valuation) in September was about one third of August's USD 140bn drawdown.
• Indonesia was the only country with a larger drawdown than September's USD 42bn.
• China, Malaysia, Thailand, and India saw smaller drawdowns, while Taiwan, Singapore, Korea, and the Philippines increased their FX reserves.
• The USD 40bn decline in China's FX reserves is a welcome relief, but may not fully reflect offshore intervention.
• FX reserves in Malaysia and Thailand declined, but the extent of intervention was less than in August.
• Indonesia increased its FX selling to support IDR, which reached a high not seen since 1998.
• Korea and Taiwan showed increased FX reserves, with the BoK turning into a net USD buyer in September.

Fiscal and Monetary Outlook in Brazil

• Brazil's key policy challenge is fiscal, not monetary.
• The nominal budget deficit is expected to end the year around 10% of GDP.
• The BCB has been using FX swaps to hedge against currency depreciation, which has contributed to a 2pp of the deficit.
• The fiscal impact of these swaps is expected to be close to zero by end-2016.
• The BCB is expected to keep rates steady, and the bar is high for rate hikes.
• The Di Jan17 receiver trade has already moved +120bp in favor.
• The swap programme is expected to cost about 2% of GDP this year.

Conclusion

The document highlights the cautious market sentiment due to recent EM volatility and the expectation of a reflation phase. It recommends specific trades across different EM regions, emphasizing the use of DNT strategies, receiving rates, and managing FX exposure. Key currencies like USDZAR, PLN, and RUB are noted for their potential movements, while Brazil's fiscal challenges and the BCB's stance on monetary policy remain central to the analysis.