20180122-法国巴黎银行-Oiling_the_wheels_of_EM_FX_11页_441kb

EM Strategy Desknote Summary

Core Content

This document, produced by BNP Paribas London Branch, provides an analysis of the performance of Emerging Markets (EM) currencies and equities in 2018, with a focus on the factors influencing EM FX (Foreign Exchange) movements. It outlines the key drivers behind the strong EM performance and highlights the role of oil prices, global economic conditions, and domestic political and economic events.

Main Points

1. Strong EM Performance in 2018

• EM currencies and equities showed strong performance in 2018.
• EMFX was up by 1.9%, EM equities by 6.0% (in USD), and EM credit tightened by 16bp.
• Record high inflows were observed into local and hard currency bond funds and EM equity funds.
• Strong global economic growth and ultra-loose monetary policies in the G4 countries (USA, Japan, Germany, and the UK) provided a favorable environment for EM assets.

2. Role of Oil Prices

• High oil prices contributed positively to EM sentiment, although not the main driver.
• Supply disruptions in the North Sea and Libya, along with protests in Iran, pushed oil prices higher.
• Oil prices remained elevated at around USD 70 per barrel (Brent).
• Net oil positioning by money managers was at record longs, indicating continued support for oil prices.
• However, the backwardation in oil prices and weak USD suggest that this long positioning is unlikely to be unwound soon.
• Shale oil production is expected to respond to high prices in the next 15–20 weeks, potentially reducing oil prices.
• Noncompliance by OPEC and Russia with production cuts could also push prices lower.

3. Correlation Between Oil Prices and EM Currencies

• The BNP Paribas STEER™ model shows the correlation between oil prices and EM currencies.
• A 10% rise in oil typically leads to a 1% appreciation of EM currencies against the USD.
• However, the correlation is not uniform across all EM countries.
• Oil exporting countries like Brazil, Colombia, Mexico, Peru, South Africa showed negative coefficients, implying that higher oil prices support their currencies.
• Russia showed a counterintuitive correlation with equity markets and CDS spreads, indicating that global risk sentiment and currency intervention are more influential than oil prices.
• South Africa (USDZAR) showed a negative correlation with oil prices after the election of Mr. Ramaphosa, suggesting a shift in sentiment from domestic issues to oil-related factors.
• Oil importing countries in Asia (e.g., USDINR, USDTHB, USDPHP, USDTWD) showed positive or insignificant correlation with oil prices, which was overwhelmed by FDI and portfolio inflows.
• Turkey (USDTRY) showed a close to zero correlation with oil prices, influenced more by geopolitical risks and regional tensions.

4. Key Domestic Factors

• South Africa: The ANC conference and political stability played a role in currency movement before oil-related factors.
• Russia: The Ministry of Finance’s intervention and central bank reserves influenced the RUB.
• Turkey: Geopolitical risks and regional tensions (e.g., Syria, US relations) affected investor sentiment.
• South Korea: A hawkish central bank and rate hike in November supported the KRW.

5. Outlook

• The goldilocks scenario of strong global growth and low G4 interest rates is expected to continue.
• The positive impact of FDI and portfolio flows is likely to persist, even in the face of high oil prices.
• Oil prices are expected to remain high in the short term, but shale production and OPEC compliance may lead to a decline in the long term.

Key Information

• Oil prices have been a contributing factor to EM FX strength, but global growth and risk sentiment are more dominant.
• BNP Paribas STEER™ model is used to quantify the relationship between oil prices and EM currencies.
• Political and economic events in specific countries (e.g., South Africa, Russia, Turkey) have had a significant impact on currency performance.
• FDI and portfolio inflows have been a major driver of EM FX appreciation, even in the face of oil price volatility.

Summary of Charts

• Chart 1: Shows the relationship between Brent oil prices and net speculative positioning.
• Chart 2: Highlights backwardation in oil prices, indicating strong demand.
• Chart 3 & 4: Display oil coefficients for various commodity exporters.
• Chart 5 & 6: Show oil coefficients for commodity importers.
• Chart 7: Demonstrates the factors influencing USDRUB, including equity markets and CDS spreads.
• Chart 8: Illustrates the factors driving USDTRY, with geopolitical risks playing a key role.

Contacts

• Wike Groenenberg: Head of Emerging Markets Research, CEEMEA & APAC, BNP Paribas London Branch
• Marcelo Carvalho: Head of Emerging Markets Research, Latam, Banco BNP Paribas Brasil S.A. (Sao Paulo)
• Piotr Chwiejczak, Sai Ulluri, Erkin Isik, CFA, Mirza Baig, Dawn Kwa, Altaz Daga, Kun Shan, Tianhe Ji, Gabriel Gersztein, Samuel Castro, Gustavo Mendonca: Various FX & IR strategists across BNP Paribas branches in London, Sao Paulo, and Singapore.
• Barbara Consuelo: Production, BNP Paribas London Branch
• Amanda Grantham-Hill, Anna McLaughlin, Varghese Joseph: Editorial team members.

Legal and Compliance Information

• This document is non-independent research and marketing communication.
• It does not constitute investment research for the purposes of MiFID II.
• It is intended for Relevant Persons and Professional Clients.
• No liability is accepted for any use of the document or its content.
• Performance data may be based on back-testing and is not indicative of future results.
• Options, ETFs, and other securities may involve high risk and are subject to legal and regulatory disclosures.

Additional Information

• BNP Paribas Global Fixed Income Website: www.globalmarkets.bnpparibas.com
• Bloomberg Codes: Fixed Income Research (BPFR), G10 Interest Rate Research (BPBS), Market Economics (BPEC)
• Legal Disclaimer: This document is confidential, not to be reproduced, and is subject to change.

Conclusion

The strong performance of EM currencies and equities in 2018 was primarily driven by global economic growth, positive risk sentiment, and rising capital flows, with oil prices playing a secondary role. The correlation between oil prices and EM currencies is not uniform, and domestic factors often outweigh oil-related influences. The BNP Paribas STEER™ model provides a useful tool for understanding these relationships.