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报告摘要

EM Strategy Summary - 7 July 2017

Core Content

This document outlines the current EM (Emerging Markets) strategy recommendations from the BNP Paribas EM Strategy Team for the week of 7 July 2017. It includes analysis on interest rates, FX, options, and credit strategies across Asia, CEEMEA (Central and Eastern Europe, Middle East, and Eastern Europe), and Latam (Latin America).

Main Themes

Volatility in developed markets has spilled over to Asian local markets.
Carry trades are vulnerable to position adjustment.
The current situation is not a Taper Tantrum-II, as Asia's balance of payments, sovereign balance sheets, and growth cycle are in better shape than before.
Defensive trades are recommended, especially in light of rising yields in developed markets.
Emerging Markets credit ETFs are experiencing outflows, with Romania, Croatia, Lithuania, and Kazakhstan being most vulnerable.

Key Recommendations

FX & IR

Sell SGD vs KRW (Notional: SGD 10m, Entry: 837, Target: 810, Stop: 850)
Receive 1Y1Y KRW NDIRS (Notional: 5k USD, Entry: 1.73%, Target: 1.50%, Stop: 1.90%)
Short USDARS via 3m NDF (Notional: USD 10m, Entry: 17.8024, Target: 17.00, Stop: 18.60)
Buy EURTRY 1y ATM Put (Notional: USD 10m, Entry: 5.30%, Target: --, Stop: --)
Buy USDTRY 1m Call Spread (Notional: USD 20m, Entry: 0.5%, Target: --, Stop: --)

Credit

Buy Turkey '22s and 5Y CDS (Notional: USD 5.58m, Entry: -50, Target: -55, Stop: -75)
Buy Argentina 5Y CDS vs Sell 5Y EM CDX (Notional: USD 10k, Entry: 127, Target: 139, Stop: 177)
Buy South Africa 5Y CDS (Notional: USD 10m, Entry: 193, Target: 213, Stop: 233)
Switch from Poland '24s to Hungary '24s (Notional: USD 96m, Entry: 49 bp, Target: 48 bp, Stop: 79 bp)

Key Insights

Asia

RMB remains a core long recommendation.
TWD shorts have been taken profit, and SGD vs KRW is now recommended for sale.
Front-end IRS in KRW, THB, and SGD are recommended, though a further rise in rates is not ruled out.
China is expected to maintain FX stability and provide liquidity to the bond and credit markets.
CNH funding is becoming more normalised, with 1Y1Y KRW NDIRS offering carry opportunities.
USDINR is expected to remain in a 64-66 trading range.
KRW is recommended for receiving front-end NDIRS, with a stop loss at 1.9%.

CEEMEA

USDZAR call spread is recommended for short-term weakness.
EURTRY 1y ATM put is recommended for potential reversal.
KRW, THB, and SGD are highlighted for front-end IRS.
Turkey's bond supply is expected to increase, creating supply pressure.
CEEMEA FX is expected to weaken against the EUR due to low inflation and rate differentials.

Latam

Brazil is expected to see continued economic recovery, though with uncertainty.
Chile is expected to keep policy rates unchanged.
Argentina's USDARS is seen as having a new floor at 17, with a tactical trade recommended.
CDS protection in Argentina is recommended against EM CDX.

Outlook

The end of the sell-off in EM bonds and FX is likely to be driven by a reduction in inflation expectations and a shift in central bank rhetoric.
Asian currencies are expected to remain volatile but may eventually trend upwards.
Emerging Markets credit ETFs may continue to experience outflows, especially in CEEMEA.
Interest rates in developed markets are expected to continue rising, with the US 10y yield potentially reaching 3% and the Bund yield forecasted at 0.8% by year-end.
China's monetary policy is expected to remain on hold for H2 2017, with a focus on maintaining FX stability.

Summary of Key Data and Events

G20 Summit (7-8 July) may impact global sentiment.
China's June money supply and trade data will be released on 13 July.
Thailand's foreign reserve data will be released on 14 July.
Turkey's industrial production and current account data are expected on 10 July and 12 July respectively.
Central banks in CEEMEA are expected to remain dovish due to low inflationary pressures.
India's NDOIS curve is expected to remain range-bound, with the possibility of rate cuts.
Australia's RBA left rates unchanged, with a neutral stance expected.
South Korea's BoK is expected to maintain a neutral stance, with the 1Y1Y KRW NDIRS recommended.

Conclusion

The strategy remains defensive, with a focus on carry trades, short positions, and CDS protection. The team anticipates volatility in EM markets due to developed market rate hikes and geopolitical risks, but believes the long-term outlook is positive. Opportunities are expected to emerge in RMB, KRW, and SGD as well as in CEEMEA credit ETFs.