20160311-法国巴黎银行-EM_Strategy_Plus_27页_4mb

EM Strategy Plus Summary - 11 March 2016

Core Content

This document provides a detailed analysis of emerging market (EM) strategies and outlooks, focusing on FX, interest rates, and credit markets. It highlights the ECB's supportive stance for EM, the impact of Asian portfolio inflows, FX reserve trends, and specific currency and bond recommendations.

Main Themes

Asia: Portfolio Inflows Surge

• Currency Rebound: Asian currencies have rebounded due to increased portfolio inflows.
• Key Drivers:
  • US real yields are a crucial factor for continued inflows.
  • China's FX policy management plays a significant role in maintaining stability.
• Seasonality: Inflows into EM are expected to be higher in April.
• Top Inflow Markets:
  • Brazil and Taiwan attracted the highest equity inflows in March (close to USD 1.5bn).
  • India, Korea, and South Africa also saw significant inflows.
• Bond Flows:
  • Thailand and Indonesia experienced the largest bond inflow increases.
  • Korean bond flows turned positive, while India still faces outflows.

Asia: FX Reserves - Divergent Trends

• China: FX reserves were stable, with authorities pushing the fixing below the previous day's close by 254 pips.
• Thailand: FX reserves increased by the largest monthly amount ever recorded.
• Korea and India: Both ran down FX reserves to limit currency depreciation.
• Taiwan: Central bank was oddly muted.
• Indonesia: Started accumulating FX reserves due to capital inflows.
• Malaysia: Has not yet taken action, but may do so in the future.

Asia: Buy USDINR via RKO

• Recommendation: Buy a 3m USDINR ATMF call with a strike at 68.50 and RKO at 71.50.
• Notional: USD 10mn.
• PV01: 0.45%.

CEEMEA: Momentum Continues for Now

• Funding Environment: External funding is improving as the focus moves away from currency wars.
• Interest Rate Outlook:
  • A dovish or neutral FMOC is expected to support EM curve-steepening.
  • Hungary is likely to ease, while Poland will lag, which could strengthen the PLN against the HUF.
• No New Trades: No new trades were initiated in CEEMEA this week.
• Trade Adjustments:
  • Took profit on USDZAR 2y call spread.
  • Closed 1y RUB ccy payer.
  • Added to POLGB long recommendation.

Turkey: Treasury Auctions and Buy-Back Programme

• Actions:
  • The Treasury will issue 10y fixed coupon bonds and start a weekly buy-back programme.
  • The buy-back programme is limited to TRY 0.1bn per week.
• Market Impact: Neutral for markets but may introduce short-term volatility.
• Recommendation: Maintain EURTRY call spread due to downside risks, especially with the CBRT management change in April.

Brazil IR/DI Strategy: Here We Go...

• Curve Steepening: The steepening between the short/belly and long end of the curve was over-extended.
• Premium Adjustment: The long end of the curve should adjust downward due to domestic dynamics.
• Recommendation: Go long on Brazilian rates (DI Jan-21s).

Latam FX: Short-Term, Tactical Short BRLMXN

• BRL Performance: The BRL has shown resilience against the USD due to a strengthening external sector and domestic developments.
• Fair Value: Our preferred model indicates a fair value of 3.83, suggesting the move might be over-stated.
• Recommendation: Short BRLMXN via 1m NDF.

Argentina: Go Short USDARS 3m NDF

• Risk Outlook: Risk is tilted to the upside due to central bank FX intervention and rate hikes.
• Recommendation: Go short USDARS 3m NDF.

Key Information

• ECB Impact:

  • The ECB meeting was supportive for EM.
  • The ECB's decision to reduce deposit facility rates had little impact, but the indication of low further rate easing increased European forward rates.
  • The ECB's increased QE purchases and extension to non-financial corporate bonds are positive for EM FX and credit.

• Market Signals:

  • The Chinese authorities' decision to push the fixing below the previous day's close indicates a shift in FX policy.
  • The resilience of the BRL is seen as a positive, but there is a risk of overstatement.

• Recommendations:

  • Buy USDINR ATM Call: 3m USDINR ATMF call (NDF ref: 68.50, RKO at 71.50).
  • Buy USDSGD Call Spread: 2m USDSGD 1x2 call spread with strikes at 1.39 vs 1.42, KO at 1.36.
  • Short USDARS 3m NDF: USD 4mn, entry at 16.15, target at 15.35, stop at 17.10.
  • Short BRLMXN 1m NDF: USD 5mn, entry at 4.855, target at 4.64, stop at 5.08.
  • Receive DI Jan21: 5k USD, entry at 14.50%, target at 13.50%, stop at 15.23%.
  • Receive 6m TIE Spread: Over US OIS, with a positive P/L.

• Credit Recommendations:

  • Sell Saudi CDS, Buy Malaysia CDS: Closed after hitting stop-loss.
  • Buy Turkey $ 41s, Sell South Africa $ 41s: USD 2.5mn.
  • Buy Turkey $ 21s, Buy Turkey 5y CDS: USD 10mn.
  • Buy Slovenia $ 23s, Sell Romania $ 24s: USD 10mn.
  • Sell Saudi 5y CDS: Pos. reduced.

Summary Table

Conclusion

The document outlines a positive outlook for EM currencies and markets, driven by ECB support, improved portfolio inflows, and favorable FX dynamics. It recommends specific trading strategies for various currencies and bonds, with a focus on short positions in USDARS and BRLMXN, and long positions in USDINR, USDSGD, and Brazilian rates. The analysis also highlights the importance of monitoring key central bank decisions and FX reserve trends in the coming week.