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EM STRATEGY DAILY SUMMARY - 07 November 2017

Core Content Overview

This document is a daily Emerging Markets (EM) Strategy report from BNP Paribas, focusing on key developments in Turkey, the Middle East, and Asia. It provides insights into currency movements, political developments, and market reactions, while also including legal and compliance notices for various jurisdictions.

Key Market Developments

Turkey

• TRY (Turkish Lira) Performance:
  • The TRY has been under pressure due to a prolonged drawdown.
  • To break the bearish trend, the TRY needs a 1-week gain of +4%.
  • USDTRY has recently traded above 3.84, indicating a lack of resolution in the current situation.
• Recent Developments:
  • The Central Bank of Turkey (CBRT) announced changes to reserve requirements, which provided some relief.
  • There were headlines about eased visa restrictions between the US and Turkey.
  • Prime Minister Yildirim is set to meet with US Vice President Mike Pence to discuss the matter further.
• Outlook:
  • Until the TRY achieves a +4% weekly return, Turkish rates will remain under pressure.
  • The currency is expected to continue facing challenges unless a clear resolution emerges.

Middle East (Saudi Arabia)

• Political Developments:
  • King Salman has ordered the removal of several top officials, including ministers and members of the royal family, on corruption allegations.
  • Increased tensions with Iran and the forced resignation of PM Hariri in Lebanon have heightened political uncertainty.
• Market Reaction:
  • Saudi CDS spreads have widened by 10 basis points due to concerns over domestic political instability.
  • Local stock markets have risen on expectations that Crown Prince Mohammed bin Salman will consolidate power and push forward with reforms.
• Outlook:
  • As the situation stabilizes, Saudi credit is expected to improve.
  • Stocks with high ownership by the detained individuals are likely to remain weak (e.g., Kingdom Holding is down over 20%).

Asia

• FX Market:
  • Asian currencies are mostly unchanged against the USD, with KRW (South Korean Won) showing a +0.3% gain.
• Equities:
  • Asian equities are mildly stronger overall.
• Political Context:
  • President Trump is currently in South Korea, with plans to visit China, Vietnam, and the Philippines in the coming days.

Other Recent Publications

• Brazil: Analysis of the 2018 election roadmap.
• Argentina: Discussion on upcoming reforms and negotiations.
• South Africa: Summary of political developments at the conference.

Strategy Contacts

Legal and Compliance Notice

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest.
• Marketing Communication: It is intended for Professional Clients and Eligible Counterparties under MiFID.
• Disclaimer:
  • The document is for information purposes only.
  • It does not constitute investment advice or a prospectus.
  • No liability is accepted for any reliance on the information provided.
  • Indicative prices are based on internal models and may vary significantly from other sources.
  • BNP Paribas may engage in transactions that conflict with the views expressed.
• Jurisdictional Restrictions:
  • The document is not available to all investors or in all jurisdictions.
  • Certain securities may be restricted under US Securities Laws and are only available to Qualified Institutional Buyers (QIB) or non-US persons under Regulation S.
• Confidentiality:
  • The document is confidential and may not be distributed without prior written consent.
  • It is intended for intended recipients only.

Important Disclosures

• Options and ETFs:
  • Options are complex and may not be suitable for all investors.
  • ETFs carry risks such as tracking error, currency risk, and geopolitical risk.
• BNP Paribas Conflicts of Interest:
  • BNP Paribas may hold positions or act as a market maker in the discussed instruments.
  • The firm may have financial interests in the issuers or provide advisory services.
  • There may be potential conflicts of interest, which are managed under internal guidelines and legal provisions.

Summary of Key Information

• Turkey: Requires a +4% weekly gain to break the current drawdown. USDTRY is currently above 3.84, indicating continued pressure.
• Middle East: Political turmoil in Saudi Arabia is affecting CDS spreads and stock performance. Expectations of reforms are pushing equity markets higher.
• Asia: Mixed performance with KRW up 0.3%, while other currencies are stable. Equities are broadly stronger.
• Legal Notice: The report is non-independent, may involve conflicts of interest, and is not investment advice.
• Compliance: Jurisdictional restrictions apply, and the document is only for Professional Clients and Qualified Investors.